Whoa, wait a minute, you say. A website is an asset? I always considered it an expense!
Yes, websites are generally considered a business asset, particularly an intangible asset. They represent a resource owned by a company that is expected to provide future economic benefits, such as generating revenue or enhancing operational efficiency. While the development costs may be treated as expenses initially, the website itself, as a digital property, is often categorized as an asset.
Here’s the Details.
Intangible Asset
Websites are classified as intangible assets because they are not physical objects but still represent something of value to the business. More specifically it can be considered a type of intellectual property, along with trademarks, patents, logos, domain names, and software. All of these can be protected by copyrights or trademarks.
Future Economic Benefits
A website can attract customers, enhance brand credibility, and streamline business processes. As a 24/7 presence, a website provides a platform for cost-effective marketing, and enables collection of detailed customer data to help with decision-making. These all contribute to future economic benefits to your company.
Capitalization
When a website is developed, its costs can be capitalized as an asset on the balance sheet, especially if the website is expected to generate income over several years.
Depreciation
If a website is used in a trade or business and has a determinable useful life, in may be possible to depreciate it. Talk to your accountant to find out if your website can be treated as a fixed asset and depreciated.
Domain Names
Domain names, which are crucial for website functionality, are also considered intangible assets by the IRS and may need to be capitalized and amortized over 15 years.
Expense vs. Asset
While some argue that website development costs are expenses (incurred to generate revenue during a specific period), many financial experts recognize websites as long-term assets due to their ongoing value in attracting customers and generating revenue.
Impact on Balance Sheet
If a website is considered a fixed asset, its development costs can be added to the business’s balance sheet.
