Software bought outright belongs on Line 13, depreciation and section 179 expense deduction.
Why line 13
Software bought outright on a perpetual licence is property you will use for years, so it is capitalised and recovered on line 13, usually in full under a section 179 election because off-the-shelf software qualifies. Subscription software is the opposite case: a monthly or annual plan buys access for a period, nothing is owned, and the cost is a current expense on line 18. That distinction is the whole question for most people, because almost all modern tools are subscriptions.
Stop looking up lines one at a time. ClaryBook totals your year into an IRS Schedule C worksheet in form order, Part I and Part II line by line, so software bought outright lands on Line 13 without you sorting it.
Start for freeWhat software bought outright is confused with
- Line 18, office expense
- If you stop paying and lose access, it is a subscription on line 18; if you keep using the version you bought, it is a capital asset.
- Form 4562, form 4562, carried to schedule c line 13
- The purchased licence is listed on Form 4562 with its cost and date in service, and only the depreciation total reaches line 13.
- Line 11, contract labor
- Custom software written for you by a contractor follows its own rules and is capitalised or amortised, not deducted as contract labor.
Examples that belong on line 13
- A 2,900 dollar perpetual CAD licence
- A 1,400 dollar one-time purchase of estimating software
- A 600 dollar plugin licence with no renewal requirement
- An 1,800 dollar point-of-sale licence bought outright with the hardware
- A perpetual licence bought in October and placed in service that month
What does not belong here
- Monthly or annual subscriptions, which are line 18
- Cloud storage and hosting, which are line 18
- Software bundled into a machine's price, which is part of that asset
- A licence bought for personal use
The limit that applies
Off-the-shelf computer software is generally eligible for section 179, which is elected on Form 4562; the annual dollar cap and phase-out threshold are indexed and set each year.
What to keep
Keep the licence invoice and terms showing it is perpetual rather than a term subscription, plus the date you started using it. The licence terms are the evidence for capitalising it.
Other expenses on line 13
| Expense | Line |
|---|---|
| a business sign | Schedule C, Line 13 |
| a camera and lenses | Schedule C, Line 13 |
| a desk and office chair | Schedule C, Line 13 |
| a laptop or computer | Schedule C, Line 13 |
| a laptop used 70 percent for work | Schedule C, Line 13 |
| a phone handset | Schedule C, Line 13 |
| a trailer | Schedule C, Line 13 |
| capital expenditures | Schedule C, Line 13 |
| commercial kitchen equipment | Schedule C, Line 13 |
| tools over a few hundred dollars | Schedule C, Line 13 |
Related lookups
- Where does printer ink go on Schedule C?
- Where does a website build go on Schedule C?
- Where do subcontractors go on Schedule C?
Sources
This page explains how Schedule C lines work. It is general information, not tax advice for your situation. If an expense is large or the answer turns on a fact about your business, confirm it with your tax preparer.
Looking for a different expense? The full Schedule C line lookup has every line from 8 to 27 with the expenses that belong on each, and Schedule C expense categories walks the whole form in order.
Stop looking up lines one at a time. ClaryBook totals your year into an IRS Schedule C worksheet in form order, Part I and Part II line by line, so software bought outright lands on Line 13 without you sorting it.
Start for free