Understanding how to classify your Website in your business

How do you view your website? Is it an expense or an asset? This is a question I ask many business owners and CEOs. Too often, they see their website as an expense, something to spend money on without any real goal in mind. However, if you want your website to be an asset, there are three things you need to do. First, your website needs to have a defined role in your company.

Defining the role of your website in your business

What is your website’s purpose? Is it mainly for generating leads? If you’re an eCommerce company, is it responsible for sales? Its value could also be different for your business. It could establish your expertise and validate who you are to customers. Every company needs a web presence, but the extent of that presence depends on the company’s role. Your website could be your main source of sales, or it could just be for establishing your expertise and being validated by customers.

So you have established your website’s role “What’s next?”

Defining a website’s role and budget is essential for any business. Once those are established, it’s important to measure how the website is performing. This can be done by tracking factors such as website traffic and conversions. Just like with a portfolio of stocks and bonds, it’s important to regularly assess how a website is performing and make necessary adjustments.

Every website uses a lot of bandwidth and hosting to run. These costs are often deductible as a business expense, but your website may be considered a luxury, personal expense. If you produce content for your website that the IRS determines as a business activity, then you can deduct the expenses as a business expense.

When it comes to business expenses, there are two options for how you can categorize your website: as a business expense or as an asset. However, both approaches have their own benefits and drawbacks, so it’s important to determine which one is the best fit for your company based on your website’s role and budget.

This may seem like an easy decision at first glance, but it’s not always that simple. Although the IRS requires businesses to deduct expenses from their income, a website doesn’t necessarily have to be treated as an expense, since it can also serve a strategic role in generating other revenue-generating activities.

The key question is: Are you using your website primarily for business purposes, or do you want to use it more as an investment? If your aim is to promote products and services in order to generate sales revenue, then treating the website itself as an asset may be a better option than treating it as a business expense. However, if you’re looking for something that will get people interested in your company before they buy anything, then treating the website as an expense may be more beneficial.

When Does a Deduction Apply?

The Internal Revenue Service (IRS) considers a website a business asset but not a deductible expense. “Depreciation” is a term for a tangible asset which is a class of property that wears down over time or obsolesces. The depreciation tax break applies to a business asset at least 10 years old and has a cost of $2,500.00 or more.

The IRS does not allow website deductions as a business expense. The “depreciation” tax break only applies to tangible assets such as furniture or equipment.

Check out this video by FieryFX where they explain some of the fundamental things to acknowledge when assessing whether or not to categorize your website as an asset.

Treating your website as a fixed asset

A website is an important investment for any business. It’s not just a cost that’s written off in one hit – it’s an asset that can be used to generate income for your company.

Just because developing a website is seen as a cost doesn’t mean it has to be. There is an alternative option that can make your website an asset rather than a liability. When you treat your website as a fixed asset, the cost of development moves from your profit and loss to your balance sheet. This removes the immediate hit of the development cost and spreads it out over time.

Many experts believe that a website can be seen as a fixed business asset. However, before making any decisions relating to the accounts of your business, it is important to speak with an accountant.

Defining a Fixed Asset?

A fixed asset is something in your business that you purchase to help you generate income. Office equipment, a vehicle, or an industrial machine are all common examples. Fixed assets typically have a usable life after which they fail or become obsolete and need to be replaced. However, there are some assets that may not have an immediately apparent end-of-life, but they still need to be tracked and depreciated over time. For example, real estate or patents.

When you buy a fixed asset, such as a building or a piece of equipment, the cost is not immediately reflected in your profit and loss statement. Instead, it’s recorded on your balance sheet. Over time, you’ll then record the asset’s depreciation, which spreads the cost of purchasing the asset over several years.

Can your website be considered a Fixed Asset?

So, can you treat your website as a fixed asset? In most cases, you probably can. The only true exception to this would be a website that is designed to drive leads and sales, and doesn’t just act as an information portal. A website with lead gen tools and ecommerce functionality is a much more important part of your business than a brochure-style website.

Unfortunately, many businesses today are neglecting their website’s role in terms of digital marketing. In reality, however, this is becoming an increasingly rare occurrence as online marketing becomes increasingly important in all industries. So, if you expect your website to help generate income for your business in the coming years, you need to regard it as a fixed asset and put the cost of development on your balance sheet.

What Are the Benefits of Treating Your Website as a Fixed Asset?

A website is an important investment for any business. Not only does it add strength to your balance sheet, but it also allows you to write off the cost of building the website over several years. This helps reduce the immediate impact on your bottom line and makes it easier to manage your cash flow.

It’s not always easy to make the decision whether or not to include the cost of building your website in your profit and loss. You and your accountant are the only ones who can decide what’s best for your specific situation. But remember, the value of your website to your business over the long-term should be taken into account.

Whether to include the cost of building a website in your profit and loss statement is up to you. There are certainly cases where it makes more sense to do so, but there may be other instances where it makes more sense to keep the website separate.