Have you considered how you would handle the costs incurred with correcting a Year 2000 computer-date problem? Currently, the tax law allows you to deduct most software development costs. However, not all costs involved in fixing the problem will be connected to software development. Some will be related to hardware, labor, and consulting, and will be more difficult to classify. Some could be considered replacement costs, such as replacing a computer chip. However, if you must replace an entire computer system, the IRS may consider it as part of a renovation plan and require the company to capitalize and amortize the costs.

The Year 2000 problem presents a wide range of issues to a business, including tax, professional liability, and operations issues that need to be analyzed and addressed before December 31, 1999. For tax purposes, make sure any fixes to your computer system are well documented and properly characterized.