As a bankruptcy lawyer I have seen that software can be a substantial expense in a business, and if the business is going to succeed an entrepreneur needs to make sure to take an income tax deduction for the costs of acquiring software.
If one purchases software for a business the general rule requires that he or she amortizes it for tax purposes over 36 months. Most small businesses however can get around this through Section 179 of the Internal Revenue Code, which allows taxpayers to expense rather than depreciate equipment purchases up to a certain dollar limit. If the software is purchased as part of the acquisition of a business however, it needs to be amortized as an intangible asset over 15 years.
Generally a taxpayer can take a current tax deduction for the cost of developing software for use in a business. Rental payments for leased software are deducted currently the same as any other rental payments.
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