Tax season is upon us, so that means it’s a great time to look into what expenses could possibly be deducted from your taxes to help get you the most possible money from your tax return.
Thankfully, if you run a small business, there are several different deductions that can be utilized to maximize your return.
A common question we see is “are web hosting fees tax deductible?” Like many tax-related questions, there is more than one answer to this question.
We will take a look at web hosting costs, how they apply to taxes, when they can be deducted, and how to go about claiming those deductions. And since we want you to get the best return possible, we will also cover a few other things that can be deducted that you might not have known about.*
Since we are a web hosting company, we are going to focus on deductions related to web hosting and other technology-related services and costs.
*Of note, the insight shared here is only applicable to U.S. residents and U.S. taxes, and the information shared should not be taken as legal advice or tax advice.
- What is a Tax Deduction?
- Are Web Hosting Fees Tax Deductible?
- What Other Website-Related Fees are Deductible?
- How to Deduct Website-Related Fees From Your Taxes
What is a Tax Deduction?
A tax deduction is a deduction that decreases the amount of taxable income that a company or individual is liable to pay during a tax period.
Deductions are usually expenses that a taxpayer accrues over the course of a taxable year that can be applied to or subtracted from their gross annual income. This is done in order to reduce the amount of taxes owed and figure out how much tax is owed to the government.
Tax deductions should not be confused with tax credits. While deductions can reduce the amount of your income before you calculate the tax you owe, tax credits can reduce the amount of tax you owe.
Simply put, tax deductions reduce how much you pay in taxes by lowering your amount of taxable income.
The federal tax law allows taxpayers to deduct several different personal expenses from their taxable income each year.
That being said, not every expense you incur will provide tax savings; the Internal Revenue Code is very specific about the types of expenses you can deduct and the taxpayers who may claim them.
To be sure you are handling deductions and filing your taxes correctly, please visit the Internal Revenue Service’s (IRS) Credits and Deductions page.
Are Web Hosting Fees Tax Deductible?
Now that we know what tax deductions are, we will take a look at how they apply to your web hosting fees.
While not a clean-cut and simple answer, the short answer is yes, you can deduct your web hosting fees from your taxes, along with other things that typically accompany running an online business.
Although the IRS has not actually issued any type of formal guidance on deducting website costs, web hosting costs are considered dues and subscriptions, which means they are deductible on your return. Since there is no formal guidance, generally, the IRS rules outlined for software can be applied.
What Other Website-Related Fees are Deductible?
Thankfully for business owners, website hosting fees aren’t the only website-related costs you can deduct from your taxes.
Other things you can deduct related to hosting include but are not entirely limited to:
When it comes to web design, if you pay someone to design your website or write articles for it, that person tends to be considered an independent contractor. Those earnings can be deducted, but if so you must send the contractor an IRS Form 1099 if the annual earnings reached $600 or more.
You can also deduct other fees like registering your domain name, but if you do, make sure you keep any receipts for at least four years. The IRS has three years from receiving your tax return to audit you.
The cost of paying for computer software is deductible as long as it is used primarily for business. It must be used at least 50% of the time for business purposes. If this criteria is met, the software (or a percentage of the cost equal to the percent of the time it is used for business purposes) is deductible in the tax year you paid for it.
Same best practices apply here. It is very important to keep receipts for four years.
Much like monthly web hosting fees, if you pay a monthly or annual fee for a business domain name, you can also deduct that as either an operational or a marketing expense.
If your online business is bringing in income, any costs associated with creation, maintenance, and continuance from your website can be claimed. Since you are not able to run an online business without a web server, domain, and add-ons like design templates, stock images, paid plug-ins, and other online tools and applications, those can often be deducted as well.
Unfortunately, when it comes to resellers, client web hosting costs can not be deducted or claimed since your client pays for this cost when they pay you for the server.
How to Deduct Website-Related Fees From Your Taxes
Web hosting fees and the others expenses we mentioned can be tax deductible. That’s great news, but how does one go about claiming those deductions?
Tax forms have a plethora of sections, but when it comes to web hosting fees and other deductions, you will want to file those under “Schedule C – Profit or Loss from Business.”
This section is part of an individual’s IRS form 1040, and it shows the business’ income for the tax year. This is where you will want to enter your deductible expenses.
Under Schedule C, find “Part II, Expenses”, and fill out the entry that best matches the deduction. From what we have discussed in this article, the most likely area to claim these deductions would be under these entries:
- #8: “Advertising”
- #18: “Office expense”
- #25: “Utilities”
- #27a: “Other expenses”
There are no doubts about it, running a business is costly. Thankfully, tax season is one of the few times you may actually be able to catch a break on some of those expenses thanks to tax deductions.
As we covered above, whether or not you can claim deductions depends entirely on your personal situation, so these tips might not apply to every situation.
To be safe, it is always best to do your due diligence when applying to deductions and credits. The last thing you want is to be audited by the IRS only to have to go through all your taxes again to fight for your return.
For a full list of deductible business expenses, please visit the IRS Deducting Business Expenses page.