Do Website Design Costs Need to Be Capitalized?

First, a disclaimer. I'm a web designer, not an accountant. This is general information, not tax or accounting advice. The rules changed in 2025, and how they apply depends on your business, the elections you make and your state. Confirm everything here with a CPA or tax preparer before you file.

Is the website you're paying for an expense or an asset? It depends, and the federal rules for software changed in 2025. Below are the rules that may apply, each linked to its source, so you know what to ask your accountant. This is current as of October 2026.

What capitalizing means

To deduct a cost is to subtract all of it from this year's income. To capitalize it is to record it as an asset and recover the cost over several years. Which applies to a website depends on what the money paid for.

Tax and book accounting have separate rules; this post is mostly about federal income tax.

Website development may count as software development

For tax years beginning in 2022 through 2024, the 2017 tax law required businesses to capitalize research and experimental expenditures, software development included, and amortize domestic amounts over five years (Rev. Proc. 2025-28, section 2).

The One, Big, Beautiful Bill Act, enacted July 4, 2025, added a new section 174A. For amounts paid or incurred in tax years beginning after December 31, 2024, it allows a deduction for domestic research or experimental expenditures in the year they're paid or incurred. You can instead elect to amortize them over at least 60 months, starting with the month you first benefit. And it treats "any amount paid or incurred in connection with the development of any software" as one of those expenditures (the enacted text, section 70302). The IRS's Form 4562 instructions also list a 10-year amortization election.

There are transition rules too. A small business that met the gross receipts test could elect to apply section 174A back to 2022, but that election was due by July 6, 2026 (Rev. Proc. 2025-28). A business that capitalized domestic amounts in 2022 through 2024 may elect to deduct what's left in its first tax year beginning after 2024, or over that year and the next. If a website was amortized under the old rule, ask about this.

Does a website count?

That's the open question. Interim IRS guidance, Notice 2023-63, says software development includes planning, designing, writing code and testing. It lists three website costs that are not research or experimental expenditures: putting content into a website, periodic hosting fees, and registering a domain name. Maintenance after launch that fixes problems without adding new functions isn't software development either. On websites as a whole, the notice asked whether special rules are needed, and I haven't found an IRS answer. The notice was written for the old section 174, though the 2025 Form 4562 instructions still point to it.

Hiring a designer doesn't by itself take you out of these rules: the regulations cover research "carried on in his behalf by another person" (Treas. Reg. §1.174-2(a)(10)). Whether your build counts, and how much of it, is a question for your CPA.

Rev. Proc. 2000-50 no longer covers new builds

Older articles cite Rev. Proc. 2000-50, which let businesses deduct or amortize software development costs. The IRS now says that section applies only to costs paid or incurred in tax years beginning on or before December 31, 2021 (Rev. Proc. 2025-23, section 9.01).

If you bought software instead

Software bought on its own, not as part of buying a business, is generally amortized over 36 months (Treas. Reg. §1.167(a)-14(b)). Software depreciated that way and acquired after January 19, 2025, is eligible for a 100% special depreciation allowance, and off-the-shelf software can qualify for the section 179 deduction (Form 4562 instructions). Whether a custom site was developed or bought is another question for your CPA.

The de minimis safe harbor

The tangible property regulations let a business elect to deduct small purchases instead of capitalizing them. Without an applicable financial statement (an SEC filing, an audited statement with a CPA's report, or a statement you must file with a government agency), the limit is $2,500 per invoice or item; with one, $5,000 (IRS). The conditions (Treas. Reg. §1.263(a)-1(f)):

• At the start of the tax year, you need an accounting procedure that expenses items under a set dollar amount, and you must expense the item on your books. Without an applicable financial statement, the procedure doesn't have to be written.
• You elect it by attaching a statement titled "Section 1.263(a)-1(f) de minimis safe harbor election" to your timely filed original return, extensions included, for the year you paid. It can't be revoked.

The catch: the safe harbor is written for tangible property, and the separate rules for intangibles list computer software as one (§1.263(a)-4(c)). Whether it can reach a website build at all is for your CPA.

If you pay before your business opens

Start-up costs fall under section 195. In the year your business begins, you can deduct up to $5,000 of them, reduced by the amount your total start-up costs exceed $50,000. The rest is amortized over 180 months from the month the business begins (Treas. Reg. §1.195-1).

A start-up cost is one you could deduct if your business were already running (IRS Publication 535, 2022), and the definition leaves out research and experimental costs. The 2025 law added section 174A to that exclusion (section 70302(b)(6)). So if a pre-opening build counts as software development, section 174A may apply instead of section 195.

Hosting and ongoing care

Ongoing costs like hosting and maintenance are generally treated as business expenses under section 162. To be deductible, the IRS says, an expense must be both ordinary (common and accepted in your field) and necessary (helpful and appropriate) (Publication 334). On the cash method, you generally deduct an expense in the year you pay it; on an accrual method, in the year it's incurred.

State taxes

States, Oregon included, may not follow the federal rules. Ask your tax preparer how your state treats these costs.

Your books may follow different rules

If you keep GAAP books, for a lender, investors or an audit, the Financial Accounting Standards Board's rules apply instead. Today, FASB's internal-use software guidance sorts costs by project stage, and websites have their own subtopic (350-50). In September 2025, FASB issued ASU 2025-06, which drops the stages and folds the website guidance into the internal-use software subtopic (350-40). You start capitalizing when management has authorized and committed to funding the project and it's probable the project will be completed and used as intended. It takes effect for annual periods beginning after December 15, 2027; early adoption is permitted.

The update's example has an organization hiring an outside developer for its website. The developer's fees and the initial graphics are evaluated for capitalization; entering content and registering with search engines are expensed as incurred, and hosting over the period of benefit.

How this might apply to my prices

Here's how the rules above might apply to a Popproxx site: a list to discuss with your CPA, not a conclusion.

The Starter build is one $2,400 fee for the whole build: $2,160 if you pay in full, or $1,200 now and $1,200 before launch.

• If the build counts as software development, section 174A would let you deduct it in the year you pay or incur it, or elect to amortize it.
• If it doesn't, either total is under the $2,500 de minimis limit for a business without an applicable financial statement. That helps only if the safe harbor reaches a website, you make the election for that year, and your accounting procedure was in place at the start of the year. I can't know those facts.
• If you pay before you open, section 195 or section 174A may apply, depending on how the build is classified.
• If the two halves fall in different tax years, your accounting method decides which year each counts in.
• Notice 2023-63 and FASB's example both treat content entry apart from design and code. If your CPA wants that split, ask me what went into your build.

The care plan is $79 a month, month to month, from launch. It covers hosting on Vercel with SSL, daily backups, uptime monitoring, and security and dependency updates. Costs like these are generally deducted as ordinary business expenses as you go, and Notice 2023-63 puts hosting fees and fix-only maintenance outside software development.

Questions to take to your CPA

• Does my build count as software development under section 174A? All of it, or part?
• If it does, should I deduct it now or elect to amortize it?
• Was it developed for me or bought? Does the de minimis safe harbor apply?
• Did I pay any of it before my business opened?
• Does my state follow the federal treatment?
• Do I need GAAP statements, and if so, when does ASU 2025-06 apply to me?

One more time

I'm a web designer, not an accountant, and this isn't tax or accounting advice. The rules changed in 2025, and what applies to you depends on your business, your elections and your state. Take this to a CPA or tax preparer before you file.

If you're still deciding what to build, every plan and its price is on the pricing page.