When it comes to web hosting, you want to make sure you’re getting the best deal possible. You want your site to be as fast and reliable as possible, and you don’t want any surprises down the road. That means understanding how web hosting works, and being prepared to pay for the best deals out there. If you can do that, your business will have a lot of success when it comes to online presence.
Accounting Category for Web Hosting
If you’re in the business of buying and selling domains and websites, as well as operating these websites for a profit then using the correct accounting treatment is important. I have also noticed that the amount of information available on the internet regarding the proper treatment is difficult to come by and, so far, I have not found a detailed or consistent method for this type of business.
Additionally I must state that the following is simply my opinion and may or may not relate directly to your domain/website business. From my research, accounting for web-based businesses have not been discussed at length; I have developed the following series of articles through my experiences while both owning and running several websites and domains.
This series of articles will attempt to clarify and create a standard set of principals that business owners and accountants should use when relating to this relatively new market. Feel free to contact me in relation to this article series to give me your opinion either on LinkedIn or through my contact form.
The proper treatment of Domains and Websites on your Chart of Accounts
My first article on this topic will discuss how you should treat the purchase of domains and websites on your chart of accounts. Many times, business owners who use the cash-basis method of accounting will ‘write-off’ the purchase of these items as expenses, when in fact they should be capitalized and either amortized or depreciated over a useful life.
Hosting costs, on the other hand, are treated as expenses by both the cash-basis and accrual businesses. However, both cash-basis and accrual should deduct only the prepaid hosting costs that occurred during that time period; my personal belief is that business owners should treat hosting costs the same as they would Rent or Insurance: The IRS does not allow businesses to deduct these expenses in advance of when they occur. Thus if you pre-pay for 3 years of hosting costs on January 1, 2014 to receive a discount, you can only deduct 1/3 of those expenses in 2014, and another 1/3 in 2015 and 1/3 in 2016.
Before going any further let’s separate the accounting treatment of the domain itself from the website, which in my view are two totally different assets even though they are very much so related.
Let’s say you go to GoDaddy.com and buy a new domain for $9.99/year–how is that any different from when you buy a similar but different domain on the GoDaddy.com Auction for $99.99? When you “buy” a new domain from GoDaddy you’re really just “renting” it at a yearly price with the option to renew each year. If you don’t renew the rent each year, you forfeit your right to the domain and GoDaddy will resell it to someone else (after wiping it clean of any improvements you make). Thus the accounting treatment is similar to that of the hosting I described above–if you prepay for 2, 3, 4 or more years up front, you should only deduct the cost of the rent 1 year at a time.
When you purchase a domain from the Auction block, you’re essentially paying for the additional intangible value to that domain (some domains are worth way more than others). Even though you are paying $99.99 for the domain, you still have to pay GoDaddy.com (or similar site) the $9.99/year in addition to this auction price to manage the domain. So the $99.99 you’re paying to buy the domain from the Auction is similar to that of “GoodWill” which should be amortized over a 180 month (15 year) period. This same treatment holds true if you purchase the domain from a friend, reseller or acquire it via trade.
Websites You Build From Scratch
If you buy a domain new, then you will expend costs to acquire content, designs, logos, coding, etc that add up to create a “website.” These are all similar to the construction materials that go into a leased office building and, when the website is completed, must be depreciated over the useful life of the website. A ‘completed’ website is a term that is wide open to interpretation, but in my opinion I think it would mean when you are ready to do any of the following: 1) You have started to buy/sell advertising for/on it, 2) You’ve placed affiliate/referral links on the site to start earning revenue or 3) You’ve placed the website up for sale. At this time, all the costs that have gone into the website (include paid labor but not the value of your own time), become added into the website and becomes its original basis.
Once the website has been ‘completed,’ you can now depreciate it over a useful life. How long? Again this is open to debate (I am not aware of any IRS clarifications on this) but your reasonable options are 3 years, 5 years or 7 years–I feel the best treatment is either on a 3 year of 5 year time span. For most of my clients, I choose a 3 year treatment because of the relatively short-term trends that the internet tends to create. On the other hand, if you prepay a domain for 5 years in advance I would have difficulty arguing your intention on the value of the website was for less than that amount of time.
Any additional expenditures for the website going forward must either be added to the basis of the website or deducted in the current tax year. What determines the treatment? Essentially if you add a new set of content that is expected to extend the useful life of the website more than 1 year, then it must be capitalized and depreciated over a new 3 year (or 5 year if applicable) time span. However if you’re releasing daily content (news, blog posts, tips and tricks, etc) then these don’t extend the useful life of the website enough that they should be depreciated, even if in the future you receive a form of revenue from these posts.
Websites You Purchase Already ‘Complete’
If, when buying the domain from a 3rd party, you receive a website in addition then you must attribute some of the purchase price to the basis of the website. This basis then gets depreciated over a 3 year or 5 year time span. Just like when you create a website, any additions you make that increases the useful life of the website must be capitalized and depreciated over a new time span.
When You Sell A Website And Domain
Once you dispose of the domain and website, either by sale or refusal to renew (selling price = $0), you recognize a gain or loss based on the difference of the selling price and the adjusted basis (original purchase price minus amortization) of both the domain and website separately. If you bought the domain new then your basis in the domain is $0. Note that this value is different from the website itself and, when you sell both a domain and website together, you must portion the amount received separately to both the domain’s and the website’s adjusted basis.
Accounting principles applicable to domain names
The domain name is not to be considered as a simple technical tool, but as an intangible asset to write in the balance sheet of the companies and collectivities, if it allows to generate a lasting source of profit. In a decision of the French Council of State of December 7th, 2016 (ebay.fr case), the wise persons of the Palais-Royal thus remind that if the use of a domain name:
- Represents a constant source of profits;
- Has a sufficient sustainability (particularly if it can be regularly renewed);
- Is likely to be transferred;
Then it is an intangible asset of the company and must follow the associated accounting and tax rules. As such, the domain names have to be accounted either at their creation cost, or at their acquisition value, or at their current value (market value) for the ones acquired free of charge.
How to Improve Your Web Hosting Accounting.
Web hosting has become a popular way to run a website. It allows you to create a website quickly, without having to worry about the technical details. The downside is that web hosting can be expensive, and it can be hard to keep up with changing technology.
To improve your web hosting accounting, you need to understand the different steps in web hosting service management. In addition, you should also be familiar with the benefits of using web hostings accounting software. By following these tips, you will be able to improve your web hosting accounting skills and save money on your next website project.
What is Web Hosting Accounting
WebHosting Accounting is the process of understanding how your website is performing and taking responsibility for any problems or issues that may occur. This includes setting up your site properly, patching any errors that may occur, tracking site activity and more.
The Benefits of Web Hosting Accounting
When you use web hostings accounting software, there are certain benefits that come along with it:
-You can save time by understanding what is happening on your website and correcting any issues before they cause damage. -You can track site activity so that you know exactly where each user is spending their time on your site. -You can take action immediately if there are problems on your site which impact user experience or money lost due to broken promises made by your hosts/web developers/etcetera). -There are many other benefits that could be mentioned but these suffice as a brief overview of why using web hostings accounting software might benefit you in some way.
Domain Expenses Accounting Treatment
Inspired by the ISO 10668 standard regarding the monetary valuation of the brands, Nameshield has developed a reliable scientific corpus by financing the CIFRE thesis of Mr. Clement GENTY (2016-2019), covering the subject: Internet governance and global economy: proposal of a valuation model of a domain name’s value as intangible asset. It is in this context that three approaches regarding the monetary valuation of domain names have been studied:
- A historical costs approach;
- A market approach (on semantics);
- A loss approach (replacement cost).
The market approach aims to measure the semantic value of a domain name by reference to the monetary transactions passed. To that end, Nameshield has developed a database of more than 1.4 million transactions passed (domain name, price, year). This approach allows to give a price value by comparable.
How to Improve Your Web Hosting Services.
One of the most important things you can do to improve your web hosting services is to optimize them. This means making sure your website and blog are hosted on the best, fastest servers possible. You can do this by using a web hosting company that provides optimized servers, or by optimizing your own website or blog using tools like Google Analytics and Yahoo’s PageSpeed Insights.
Improve Your Web Hosting Efficiency
In order to improve your web hosting services, it’s also important to use them efficiently. This means managing all of your website traffic in one place so that you can optimize it for speed and performance, as well as ensuring that all of your content is accessible from anywhere in the world. You can do this by using a web hosting company with good caching and storage options, or by optimizing your own website or blog for faster loading times.
Improve Your Web Hosting Security
The last thing you need to do in order to reduce the risk of data breaches is to protect your data with secure passwords and encryption methods. You can do this by using a password manager like LastPass or 1-2-1 VPN, or by setting up two-factor authentication for all of your websites and accounts. By following these tips, you’ll be decrease the chances of data breaches happening on your site – and save yourself some money along the way!
Tips for Improved Web Hosting Accounting.
When you’re setting up your web hosting account, it’s important to keep track of your hosts and their performance. This can help you improve your accounting for your website.
To do this, you can use a host tracking tool like HostGator or WP Engine to see how well each host is performing. You can also use the company’s customer management system to view detailed information about all of your hosts and customers.
Optimize Your Web Hosting Security
By optimizing your web hosting security, you can reduce the chances of unauthorized access to your website. You can do this by using firewalls, password protection, and other security measures.
Improve Your Web Hosting Speed
Speed is another important factor when it comes to web hosting accounts. To improve the speed of your site, make sure you have optimized your server code and installed latest software updates. Additionally, consider using compression techniques or caching measures on your pages in order to speed up loading times。
Improving your web hosting accounting can help you improve your web hosting services and efficiency, as well as increase security and speed. By optimizing your web hosting history and security, you can ensure that your data is safe and secure. Additionally, by improving your web host speed, you can make your website load faster and improve customer satisfaction.