What category do I put software and cloud expenses

[lizuare]

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!

[MargaretL · Accepted solution]

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

[DCNY]

So is cloud storage considered "software" ?

[petporcupine]

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]

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

[Vvex]

How do I categorize cloud base service in Quickbooks?

[DianeC958]

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

[mpsevigny]

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]

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.

[IntegrityTax]

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

[James Bordonaro]

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]

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]

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.  

[MPArtist]

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

[James Bordonaro]

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