To capitalize or not to capitalize?
Companies that sell software as a service (“SAAS”) are faced with the challenge of considering the appropriate accounting method for software development costs. In a SAAS revenue model, some software development costs may be categorized as “Internal Use Software Costs” pursuant to ASC 350-40. Costs that are incurred during the “Application Development Stage” may qualify to be capitalized, and a Company’s systems for capturing those costs for accounting purposes may need to be addressed. Significant judgment may also be involved in determining which costs are eligible for capitalization.
Should you need assistance in how to think about the accounting for internal use software costs, please reach out to us!
Bryan McKeon, CPA, MSA, is an Assurance Partner at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with one of our tax professionals, please contact our office at 781-453-8700.