Hi,
I can see that software is considered a business asset - but here is where I get confused. In 2015 I spent $7500 for engineering software - and it comes with a subscription. The subscription is about $1600 or $1700 per year and it keeps the software I bought up to date.
So, my software doesn't depreciate if I continue with the subscription. However, assets depreciate. I assume the subscription cost would be filed as an expense.
What is the typical way for software to be deducted? An asset or expense?
If the initial purchase meets the following criteria, it would be treated as an asset and depreciated:
It is readily available for purchase by the general public.
It is subject to a nonexclusive license.
It has not been substantially modified.
(If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance.
If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months).
(See Publication 946 at https://www.irs.gov/publications/p946/ch01.html#d0e202)
The annual subscription fee would be treated as an expense, a form of repairs and maintenance.
If the initial purchase meets the following criteria, it would be treated as an asset and depreciated:
It is readily available for purchase by the general public.
It is subject to a nonexclusive license.
It has not been substantially modified.
(If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance.
If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months).
(See Publication 946 at https://www.irs.gov/publications/p946/ch01.html#d0e202)
The annual subscription fee would be treated as an expense, a form of repairs and maintenance.