In the modern business landscape, an email address with a custom domain (like your.name@yourcompany.com) is not a luxury—it's a fundamental tool for communication, branding, and credibility. Services like Google Workspace and Microsoft 365 provide this essential email hosting, but for accountants and SMB owners, a simple question often arises:
What is the correct way to categorize these expenses?
While it may seem like a minor detail, properly classifying your email hosting costs is crucial for tracking your technology and utility spending, creating accurate financial reports, and ensuring you claim the correct deductions on your tax return.
Email hosting is the service that operates the servers and infrastructure required to send, receive, and store your email under your own domain name. In your accounting system, these recurring fees are best classified under one of two categories:
To ensure your email hosting costs are properly accounted for, it’s important to understand how they are treated under IRS guidelines.
To be deductible, a business expense must be both ordinary and necessary.
For virtually any business today, the cost of professional email hosting easily meets this standard.
Email hosting is a service you pay for, typically on a monthly or annual basis. You do not own the underlying servers or software. Therefore, the subscription fees are currently deductible business expenses in the year you pay or incur them. They are not considered a capital expense and should not be depreciated.
Providers like Google Workspace and Microsoft 365 often bundle email hosting with a suite of other tools, including cloud storage, video conferencing, and office applications. For tax purposes, the entire subscription fee for such a bundle is generally deductible as a single, ordinary business expense.
The following are common examples of costs that fall under the email hosting or utility expense category:
Fees paid for email hosting and related bundled services are fully deductible as an ordinary and necessary business expense.
To claim a deduction for email hosting, you must keep clear and accurate records to prove the expense. Your documentation should show the payee (for example, Google or Microsoft), the amount paid, the date, and proof of payment. The best records for this include:
Manually tracking invoices for every one of your business's recurring software and utility subscriptions is a tedious task that can easily lead to missed deductions. Fyle is designed to put this on autopilot, ensuring every expense is captured and compliant.
Focus on communicating with your customers, and let Fyle handle the expense management.