Taxes and Technology

 

Ricardo Harvin
E-mail Questions for Tech Tools to techtools@uschamber.com.

 

Are you one of those business owners working with outdated-if not actually obsolete- equipment because you think of technology purchases solely as a sunk cost? Or perhaps you just put off making necessary upgrades because you think your only option to recoup your expenses is by depreciating those costs over several years. Think again.

 

Tax time is here. And this year you can deduct up to $125,000 of your 2007 expenses for equipment and off-the-shelf software bought and put into use before the year ended. This deduction, under Section 179 of the IRS tax code, lets you avoid the standard depreciation schedule and could substantially lower your overall tax burden. Purchases eligible for Section 179 expensing include items bought, not leased or rented, and used in the previous calendar year. Always make sure that you consult a professional before making any tax-related decisions.

 

If you put off buying technology last year, start planning now for purchases this year. The economic stimulus package recently signed by the president increases the expensing allowance to $250,000 for this year. It will take an act of Congress to extend that allowance beyond 2008, so take advantage of it while you can. Also, keep in mind that you can't carry over any unused portion of the deduction limit from one year to the next. In the long run, sticking with equipment past its optimal life span could end up costing you more in increased maintenance expenses and decreased productivity than if you followed a sensible upgrade schedule. By routinely reviewing your operations and identifying opportunities to work more efficiently, you can make sure that you're never too far behind your competition.

 

Computers and related equipment are cheaper than ever to own and operate (think lower utility bills), and adding in the benefit of this tax deduction should make it easier to fully cost-justify technology upgrades over the next couple of years. Just make sure that you spend wisely
(see "Taking Control of Technology," Tech Tools September 2006), because a deduction on a bad purchase isn't a good deal.

 

With a little planning, you have an opportunity over the next couple of years to build a solid technological future for your business while lowering your tax bill. Don't take a chance on letting this golden opportunity pass you by.