Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
lizuare
New Member

What category do I put software and cloud expenses

Trying to figure out the best category for software,cloud expenses, website hosting, etc. Seems like these would be a pretty standard expenses in 2016 for my business and can't find it in any of the examples!
1 Best answer

Accepted Solutions
MargaretL
Employee Tax Expert

What category do I put software and cloud expenses

While your expenses are definitely becoming increasingly common, the IRS doesn't have a special "category" listed on Schedule C. You may enter them as Other Expenses; create your own description and enter the amount.

There are special rules, however, for computer software.

* If the software is purchased by itself, rather than being part of the hardware cost, it is treated as an intangible asset and must be capitalized (depreciated).

* If the cost is bundled and not separately stated, it's part of the hardware and depreciated as part of the cost of the hardware over five years. However, under Section 179, you can write off a whole computer system (including bundled software) in the first year of purchase.

* If you lease a software, it is considered as rent expense on your business.

https://www.irs.gov/publications/p535/ch08.html#en_US_2014_publink1000208981

View solution in original post

14 Replies
MargaretL
Employee Tax Expert

What category do I put software and cloud expenses

While your expenses are definitely becoming increasingly common, the IRS doesn't have a special "category" listed on Schedule C. You may enter them as Other Expenses; create your own description and enter the amount.

There are special rules, however, for computer software.

* If the software is purchased by itself, rather than being part of the hardware cost, it is treated as an intangible asset and must be capitalized (depreciated).

* If the cost is bundled and not separately stated, it's part of the hardware and depreciated as part of the cost of the hardware over five years. However, under Section 179, you can write off a whole computer system (including bundled software) in the first year of purchase.

* If you lease a software, it is considered as rent expense on your business.

https://www.irs.gov/publications/p535/ch08.html#en_US_2014_publink1000208981

View solution in original post

DCNY
New Member

What category do I put software and cloud expenses

So is cloud storage considered "software" ?
petporcupine
New Member

What category do I put software and cloud expenses

According to the above, I'd say if you're paying a monthly fee for something like Dropbox, then you'd enter it as a rent expense. The reason being that if you stop paying your fee, you don't own any software or have access anymore.
TuckerdogAVL
Level 4

What category do I put software and cloud expenses

Where does a “rent” expense go? I have this as well.
Vvex
New Member

What category do I put software and cloud expenses

How do I categorize cloud base service in Quickbooks?

DianeC958
Expert Alumni

What category do I put software and cloud expenses

Since there is not a direct expense for cloud-based software you can categorize it as Rent Expense if you pay a monthly fee and do not own the software.  This is because if you stop paying the monthly fee you no longer have access to the service.

 

The other option is to create your own category for Software and Cloud Expenses.

 

Link to MargaretL's response for category for software and cloud expenses

 

@Vvex

 

 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
mpsevigny
Level 1

What category do I put software and cloud expenses

Is this true for other SaaS as well that aren't cloud related? For example, I run a yoga studio and I'm wondering how to categorize my CRM (we use MindBody) or how to categorize the studio subscription to Spotify (an online music streaming service). So they aren't things I'm holding documents on, but the service does stop if I don't pay monthly. 

 

Is there a disadvantage or advantage tax-wise to putting them in the chart of accounts under "Other expenses" or under "Rent"?

 

Thank you! 

Morgan 

ThomasM125
Employee Tax Expert

What category do I put software and cloud expenses

It is not critical what expense categories you put them in as they will be deductible anyways. I suggest if you are unsure, just set up a new expense category and give it a descriptive name.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
IntegrityTax
Level 1

What category do I put software and cloud expenses

You will just need to add an account named "Software and Cloud Expenses"

James Bordonaro
New Member

What category do I put software and cloud expenses

I think it could make a significant difference as to how one categorizes cloud/online software, apps and storage, etc.   For example, under the first Paycheck Protection Program rent expenses and certain utilities were eligible for forgiveness under the Small Business Administration's rules.  Of course, as the program was designed to keep people employed and businesses operating, the rules also required that a certain percentage of loan proceeds be dedicated to payroll.   

dawndawndawn
Level 1

What category do I put software and cloud expenses

I have always thought of the monthly fee SAS stuff as "Dues & Subscriptions", since they seem to fit the concept of a subscription.  Is there a reason I should not do that?

 

DMarkM1
Employee Tax Expert

What category do I put software and cloud expenses

No there is no reason you cannot put the monthly subscription payments for electronic access to items needed in your business in the subscription category.  Originally the category was for magazines, newspapers, etc but these days that is now electronic.  

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
MPArtist
New Member

What category do I put software and cloud expenses

Just wondering what the best category is for software and cloud expenses for 2021

 

James Bordonaro
New Member

What category do I put software and cloud expenses

I put these expenses in as rent when I did my PPP loan request.  

Dynamic AdsDynamic Ads
Privacy Settings
v