What is usually capitalizable
Internal development labor used to build software hosted in the cloud, configuration of a cloud hosting arrangement that grants a software license, and certain third-party implementation costs. The IRS and FASB guidance has tightened repeatedly — the underlying rule is that capitalization reflects future economic benefit beyond the current period, while routine subscription and infrastructure usage is consumed in the current period and expensed.
What is usually expensed
Hosting fees, SaaS subscriptions, support, ongoing operations, training, data conversion, and maintenance. For most early-stage SaaS companies, the bulk of monthly cloud spend is operational and lands in COGS or operating expense — not on the balance sheet.
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Frequently asked
Can hosting fees ever be capitalized?
Generally no under current US GAAP (ASC 350-40) and IFRS. Hosting is treated as an operating expense in the period consumed. Capitalization usually applies to the labor that built the software, not the infrastructure that runs it.
Does capitalization help or hurt the bottom line?
Short term, capitalization improves reported operating income by moving cost off the income statement. Long term, it has to be amortized — so total expense over the asset's life is the same, just smoothed.