Write off for Software Licensing

Mar 09, 2005 1 Replies
M

I have just started a small sole proprietorship company in Florida and have a question regarding what I can write off. It's a web design company and I'm debating whether to purchase a somewhat expensive software licensing that allows me to use software to make menu bars on websites with more than one website. In regards to this I have the following questions:


  1. Is the purchase of such licensing something that a business would be able to deduct or write off if profit motive is proven for 3 years out of 5 years of the existence of the business?
  2. Does there have to be a minimum amount that a company has to make or that I have to make for the year I would be claiming taxes on and be getting a write-off?
  3. If it is deductible can it be written off 100% as for example current expense are, or would it only be a percentage? Thanks very much for any response/s.



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M

Yes...probably amortized over 36 months using straight line calculation (ie if you bought in 4/1/2005, you could amortize (deduct) 9/36ths the first year, 12/36ths the 2nd and 3rd year and 3/36ths the final year 2008. I'm ignoring the 3 out of 5 year part of the question. If you are buying it truly to generate a profit, take the deduction. If you want to create a deduction for buying software you actually will be using for personal pleasure, its a hobby and no cigar:-)

Making a profit 3 out of 5 years is a good indication the business is not a hobby. Its more of a rule of thumb than law. I have clients that lost money 4 or 5 years, then started making money; also have clients that gave up after losing money several years. The facts usually make it clear if you are in business for business or pleasure.

36 months...see above.

Mike Lewis, CPA

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