For the 2018 tax year, I'm looking to take 100% bonus depreciation on software expenses for my US (California) based LLC. While the tax code states that "Off-the-shelf computer software" is eligible property for the section 179 deduction, it's vague on what "off-the-shelf" actually means. Does the definition include software purchased online? Are there cases where it might include subscription based software (where access is provided for 1 or more years)? Does it include web apps (that run in the browser as opposed to being downloaded to local storage)? Please help clarify this for me.

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    The close votes that are accumulating and labeling this a pure accounting question are off the mark. This is a practical tax question about small business owned by the OP. Don't let the word "depreciation" fool you. I will refer you to the these two meta discussions about small business questions. – Chris W. Rea Nov 26 '18 at 17:45
  • Agreed. I closed and reopened to clear the votes to close. In case we (mods) don't catch it, and it closes. – JTP - Apologise to Monica Nov 29 '18 at 22:53

In contracting Non-off-the-shelf software is software that has been modified or developed for you. Microsoft office is off the shelf. Paying a company to develop an add-on to MS office would not be off-the-shelf.

How it is delivered isn't relevant. It could be purchased from a physical store, or delivered by the post office, or downloaded.

A subscription based model would be the same, though the payment frequency would be an issue. If you pay $x per month then only those months for this year would apply for this years taxes. If there is an annual or multi-year subscription it might have to be split the same way.

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    Look at subscriptions like rent. There's no depreciation there, just recurring costs. – user71981 Nov 26 '18 at 14:24
  • @JanDoggen Your suggestion is that no type of off-the-shelf software is eligible for depreciation if it’s subscription based (regardless of the subscription duration)? – JWK Nov 26 '18 at 14:42
  • @JWK yes - because you don't buy a license, you rent it. You cannot depreciate rent, you can deduct it. – Aganju Nov 26 '18 at 16:19
  • If you're talking about taking a 179 deduction versus deducting rental cost, the net effect is the same: You deduct the full amount paid in the year that you paid it. Technically you should write it on a different line on the tax form, but as the effect on your taxes is the same, I'd be surprised if the IRS gave you a hard time if you did it wrong anyway. :-) – Jay Nov 27 '18 at 21:12

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