Discloser

[Alpha]

OK, I have a new start-up with about $6,000 in web site design. The same client also spent $8,000 on a different web site for an established business.

I have researched this a lot and am getting conflicting cites. According to the depreciation guide from CCH

“The tax treatment of the cost of developing and maintaining a web site has not been officially addressed by the IRS.” It appears that some are writing it off as advertizing, some as start-up costs, some as software development and some as R&D.

If I take the position that the one for the estabilished business is advertizing (they are real estate agents) do I need to disclose that.

What about if I classify the one that is for the start up as start up costs and amortize it over 3 years instead of the traditional 15 because no web site will be the same in 15 years.

Do both of these require disclosure or only the 2nd one or is there another way of looking at this that I am not seeing.

Cyndi (alpha)

[kcjenkins]

I'm not going to take a position on how the IRS will finally come down on this, but I will say that if you do take the costs as 'start up' then you have to use the IRS rules for startup costs, and amortize over 15 years. The fact that the website will clearly change many times over the next 15 years would be an argument for direct write off. However, if you think about it, Cyndi, many 'start up costs' are for things that will change before 15 years are up.

I personally think many of these really are 'advertising', and should be written off. However, if a business spends over $5000 on a website, the very fact that it was that major an issue, would be an argument for capitalizing it.

[jainen]

>>many 'start up costs' are for things that will change before 15 years are up<<

Supplies are completely consumed before the business even opens, but they still use the same amortization rule.

[RJM]

I pretty much agree with KC. If the amount is not very material for the size of that business, I write them off as current advertising expense. For a startup where revenue will be less than, say, $100k, maybe I would be more inclined to amortize. Don't think I would disclose in any case, cuz it is really a minor item IMO.

[Alpha]

The reason I am wondering about disclosing is because they have had a loss every year on the RE business and they will have a loss on this new business also. So sense there is no IRS rules on this do I have to disclose what I am doing.

[BulldogTom]

Take a look at a §195 election and you may be only amortizing 1K. I think you can expense in the first year up to 5K of start up cost if you make the timely election.

Don't quote me on this one because I am going from memory. Look it up and I think that will be the way to go.

Tom

Lodi, CA