What category do I put software and cloud expenses

Forum|Forum|7 years ago
June 1, 2019
3 replies
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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!

TurboTax Self Employed Online

Best answer by MargaretL

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

MargaretLAnswer

Level 12

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 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

DCNY

Level 2

So is cloud storage considered "software" ?

Vvex

Level 2

How do I categorize cloud base service in Quickbooks?

DianeC958

Level 12

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

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mpsevigny

Level 2

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