Technology purchases can be used for tax write-offs which effectively decreases the overall cost and means the payback time will be shorter.
The end of 2020 is approaching fast and many Connecticut business owners are working with their accountants to see what they can do in the last two months of the year to reduce their tax burden.
One of the best year-end strategies that you can implement is to upgrade your technology solutions. Both hardware and software purchases qualify for deductions on Form 4562, Section 179.
Benefits of doing a year-end technology upgrade include:
- Improved productivity
- Better cybersecurity and reduced risk
- Fits into business continuity strategies
- Prepares you to be one step ahead in 2021
What Technology Can Be Used for Tax Credits?
When planning for technology purchases that you can use for 2020 tax deductions, it is important to understand exactly what you can deduct and how those deductions work.
You will want to review Section 179 details with your tax accountant but here are the basics of the deduction limits and the categories of technology that qualify.
Deductions for 2020:
- You can deduct the purchase or finance cost of new and used equipment as well as off-the-shelf software. Deduction limit is $1,040,000.
- Spending cap on equipment purchases is $2,590,000.
- There is a 100% bonus depreciation you can use for new and used equipment.
Here are some of the types of technology that qualify.
Is it time to upgrade older computers? Studies show that the total cost of ownership for business computers rises sharply between year three and year four.
Holding on to a computer too long before replacing it costs businesses an average of $2,736 per year for each device.
Consider purchasing desktops/laptops for:
- Any PCs that are 4+ years old
- Remote employees who may be using their own personal PC’s
- Any computers too old to upgrade to the current operating system (Windows or Mac)
“Off the shelf” means any software that is publicly available and not created custom for your company.
The ability to deduct software purchases makes it a perfect time to review your workflows and the tools you are using to see which are serving you and which are not.
In 2019, SaaS waste nearly doubled from the year prior because many companies are not integrating cloud tools well. They use different software that does the same thing or subscribe to tools that employees abandon after a few months.
Some of the considerations when doing a software upgrade:
- Look for all-in-one platforms (Microsoft 365, G Suite, etc.) that natively integrate multiple apps into one platform.
- Survey employees to find out which software is most or least helpful.
- Consider automation capabilities in any software you choose so you can replace manual processes.
Tangible Personal Property (Mobile Devices)
In the category of “tangible personal property,” the IRS includes cellular telephones and similar telecommunications equipment. So, if you have been looking to improve your company’s use of mobile devices or purchase more tablets, these are also able to be used for tax deductions.
Did you know? Mobile devices now do about 80% of the workload in an office!
Mobile devices have taken over so much of the workload without us really realizing it because they are portable and easier for some employees to use due to intuitive touch screens.
Take a look at how your company uses mobile devices and consider upgrades to:
- Improve customer support by providing a modern experience such as check-ins using an iPad at the front desk.
- If employees are currently using their own mobile devices, evaluate whether company-owned may be a better fit for your security needs.
- Replace any older phones that cannot be upgraded to the current applicable smartphone operating system.
Real Property (Security System)
Items connected to a building are considered “real property” and this is another category of allowable deductions under Section 179. Security cameras fall under this category.
Have you been wanting to add or expand an existing surveillance system? The popularity of IP security cameras has made it very affordable to add video security to your property.
Cloud security camera systems can be accessed from any internet-connected device, have two-way voice capabilities and are easy to install and reposition as needed.
Consider the following when making security system purchases:
- The picture quality you want (some are higher definition than others)
- Whether two-way voice is a feature that you need
- Any necessary signs you may need to purchase that indicate video surveillance is present
Get Help with a Strategic Technology Upgrade Plan
It is important to have a plan when making year-end, tax-efficient technology purchases. Sound Computers will work with your business to find the best IT investments for your money.
Contact us today to schedule a free consultation. Call 860-577-8060 or reach us online.