How do you report project costs on business taxes?

[abd21b53]

I've spent about $45,000 this year on various projects - probably 10-12 in total.  I had a discussion with my CPA who wasn't really familiar with Upwork or freelancer sites.  When I tried to explain it he said, "Well, if the projects aren't completed you can't deduct them until they are ready to go to market."

I've scoured all of the help documents on Upwork and understand that I have no obligation to issue 1099s, but how is everyone deducting the project costs?  What do you categorize them as?  I've seen some say marketing expenses, but mine are for web and application development.

Looking for some better info to take to the CPA to say "Here's how everyone else does it."

Thanks.

[prestonhunter]

re: "When I tried to explain it he said, 'Well, if the projects aren't completed you can't deduct them until they are ready to go to market.'"

So you are saying this CPA is an imbecile?

[petra_r]

You might want to hire a CPA from Upwork who will be familiar not just with your tax situation, but also with freelancing, Upwork, and how that works regarding taxes.

If you don't want to completely fire yours, you could hire a good CPA for an hour's phone consultation to explain things to you so you can go back to yours and set them right.

[mtngigi]

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Sean P wrote:

I've spent about $45,000 this year on various projects - probably 10-12 in total.  I had a discussion with my CPA who wasn't really familiar with Upwork or freelancer sites.  When I tried to explain it he said, "Well, if the projects aren't completed you can't deduct them until they are ready to go to market."

I've scoured all of the help documents on Upwork and understand that I have no obligation to issue 1099s, but how is everyone deducting the project costs?  What do you categorize them as?  I've seen some say marketing expenses, but mine are for web and application development.

Looking for some better info to take to the CPA to say "Here's how everyone else does it."

Thanks.

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Agree with with Petra and Preston. This statement: "Well, if the projects aren't completed you can't deduct them until they are ready to go to market" makes absolutely no sense. A new CPA is in order.

All your projects (completed or not) should (presumably) fall under the umbrella of "business expenses" ... or some such.

[zoe007]

Hi Sean,

Firstly, I'm UK based and not subject to same accounting practices as you, therefore you may have additional peculiarities that your CPA is concerned about.

For me, depends on your project output. Although you should still be able to reconcile "human" costs, even if you're building a house (a bit extreme I know)

I charge Upwork freelancer work under general expense: consulting and this works well for hourly
/ fixed price milestones. You receive about 2-3 invoice/ charges to be able to reconcile charges in your book-keeping system.

My accountant isn't overly familiar with Upwork or freelancing either and it creates her a headache as she's outside her comfort zone.

All the best,
Zoe

[jmechali]

Hi Sean, 

I'm a CPA licensed in the US so hopefully I can help. 

That statement is not particularly incorrect but it's not 100% correct either. 

Taxes have a lot of "it depends" kind of situations. 

So for instance, if you have a freelancer working on Project A for $10k and you pay them in Milestones (eg: 2k now and 8k when completed) then that may be true. In this case, the initial 2k would be deductible now but the remaining 8k will only be deductible in 2019 if it is PAID IN 2019. 

Now if we're talking about web & application development costs, then those can't really be expensed. They have to be capitalized and amortized. If you spent 10k, then you can only deduct about $600 per year for the next 15 years (depends on use of the applications etc). 

For smaller projects (up to $2.5k), you can expense them in a few separate categories: Advertizing, Business Development, Website Expense etc. If you maintain your own books, don't hesitate to create new categories of expenses that match what you do (Website expense, Computer repairs, Internet maintenance) as Quickbooks has not yet caught up to the freelance businesses of the 21st century. 

Thanks, 

Julia

[m_sharman]

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Julia M wrote:

Hi Sean, 

I'm a CPA licensed in the US so hopefully I can help. 

That statement is not particularly incorrect but it's not 100% correct either. 

Taxes have a lot of "it depends" kind of situations. 

So for instance, if you have a freelancer working on Project A for $10k and you pay them in Milestones (eg: 2k now and 8k when completed) then that may be true. In this case, the initial 2k would be deductible now but the remaining 8k will only be deductible in 2019 if it is PAID IN 2019. 

Now if we're talking about web & application development costs, then those can't really be expensed. They have to be capitalized and amortized. If you spent 10k, then you can only deduct about $600 per year for the next 15 years (depends on use of the applications etc). 

For smaller projects (up to $2.5k), you can expense them in a few separate categories: Advertizing, Business Development, Website Expense etc. If you maintain your own books, don't hesitate to create new categories of expenses that match what you do (Website expense, Computer repairs, Internet maintenance) as Quickbooks has not yet caught up to the freelance businesses of the 21st century. 

Thanks, 

Julia

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I would give you more Kudos if I could. You provided very valuable information, thank you!