Are you wondering how to categorize your Internet marketing services for tax purposes? It might be confusing if you don’t know where to begin. You may want to look into Software, Miscellaneous advertising, Specified programming (C++), and Telecommunications. If you work as an independent contractor, you can choose which category applies to your activities. Here are some examples of each type of business you can categorize:
Software
In the case of an Internet marketing service, the charge for using the Company’s software should be treated as a service. This is because the Client uses the software without the assistance of a salesperson, and the transaction is framed as a license to use the software. The Department of Revenue has determined that the software is taxable. In Letter Ruling 12-10, the IRS addresses such a case.
Telecommunications
The IRS requires companies to classify their Internet marketing services as telecommunications if they offer such services on a commercial basis. The scope of these services is wide-ranging, from traditional telephone services such as long-distance and local to newer technologies like Voice over Internet Protocol and text messaging. These services may not include call center operations. And it is important to note that many specialized Internet marketing companies also provide these services on a commercial basis.
In general, e-commerce businesses must follow the same tax guidelines as any other small business. Internet marketers can offset their income with at least a portion of the cost for equipment such as computers, scanners, printers or other tools required in their daily operation. Entrepreneurs can also deduct advertising or other marketing costs directly related to their business.
Equipment
A portion of the purchase and maintenance cost for equipment you use for your Internet marketing business may be deductible on your income taxes. If the life expectancy for your equipment is more than one year.
Advertising
If you advertise your product or service, you can deduct the costs for that advertising. Examples would be for banner advertising, affiliate marketing costs or print advertising. If you hire professionals to design and create marketing materials or produce multimedia advertising. The cost for their services would be deductible.
Hiring Professionals
If you pay professionals to assist you with your business, the cost for those services may be deductible. Some e-commerce businesses hire professional copy writers to produce content for their web sites in order to increase web site traffic. If you hire an attorney to address any business legal aspects or a bookkeeper or accountant to track business expenses or prepare your tax returns. These costs may be deductible as well.
Home Office Deductions
If you operate your business from your home, a portion of your mortgage, rent, insurance and utilities may be deducted. The IRS has specific guidelines on the deduction of home office expenses.
The scope of these services is wide-ranging, from traditional telephone services such as long distance and local to newer technologies like Voice over Internet Protocol and text messaging. These services may not include call center operations.
