The discussion over the collection of sales tax on Internet transactions continues, but there’s no doubt that receipts from your online business are taxable as income. That includes income from ads on your site, goods and services sold in foreign countries, and the sale of domain names or websites.
Fortunately, you can also claim business deductions to reduce the tax impact. For example, website maintenance and content, hosting fees, and domain name renewals are typically considered ordinary and necessary business expenses.
In addition, you may qualify for the home office deduction, which means you can expense costs related to the business use of your home. For 2013, a simplified home office deduction is available, up to a maximum of $1,500.
Items you purchase for your business that have an expected in-use period of more than a year — think computers, routers, servers, and video equipment — can be depreciated. You may be able to deduct all or most of the cost of these assets in the current year by electing Section 179 immediate expensing or bonus depreciation.
What about your website? The deduction depends on the site you establish. Design costs might qualify as software and be eligible for a three-year amortization period, or you may be able to identify separate components of site development and expense certain costs immediately. In some cases, such as when you incur expenses before your business opens, you may need to capitalize the costs and deduct them over a period of years.
Contact us, either online or off, for more details.