It’s no secret that innovating is the key to business growth and prosperity. To stay competitive, businesses must continually seek new technologies to enhance productivity. However, the issue of cost is often the biggest roadblock to innovation.
If you’re stuck between your budget and the need for new technology, you’ll be relieved to learn there are many ways to mitigate the costs of new business tech. Whether it be new equipment or software, you may be able to deduct new technology expenses come tax season.
Through Section 179 of the IRC, businesses may be able to deduct technology expenses related to depreciable assets. Some examples of technology that might qualify include:
- Cybersecurity software
- Laptops, computers, monitors, and accessories
- Printers or copiers
- Network Infrastructure
- Other office equipment
This allows businesses to deduct costs from qualified assets refreshed within the year from their taxes. This gives them more wiggle room in their budgets to update technology more often, rather than using depreciating allowances over several years.
How Does it Work?
To take advantage of possible deductions, the first step is to consult your tax professional, as they will be instrumental in this process. After you purchase, finance, or lease and start using your new technology, make sure to document all of the related expenses to forward to your tax professional. These may include setup, installation costs, shipping, and other expenses.
You’ll then use the IRS Form 4562 and elect to use the Section 179 deduction and include the allowance on your tax filing for that year. Make sure to consult with your tax service to ensure you complete this step correctly to maximize your deductions.
There is also a Bonus Deduction available on top of Section 179 with IRS Section 168(k), which can help to maximize your deductions. However, this is being rolled back by 20% every year starting in 2023. This is why it’s better to take advantage of this deduction sooner than later.
Are There Limits to Section 179 Deductions?
The deduction limits of Section 179 vary year to year. In 2024, they were raised to $1.22 million. This applies to financing, purchasing outright, or leasing equipment or software. Some tools that will not likely be eligible include:
- Databases if they are not essential to the function of other software
- Custom software
- Software that doesn’t meet the requirements of being “commercial off-the-shelf” tools used for “income-producing activities”
All of the above information is informational only, Usherwood does not provide tax or accounting advice. Each business is unique and you should always consult your own tax and accounting advisors.
Other Ways to Save Money on Technology
This tax benefit is designed to stimulate the economy by encouraging technological growth and innovation. However, there are many ways to upgrade your technological capabilities without breaking the bank.
One key method businesses are using is to utilize technology roadmaps. These are live documents that map out your technology budget, refreshment schedules for optimal security and performance, and a number of other details.
Technology roadmaps can help you organize:
- Budgeting for tech upgrades and future growth
- Device replacements
- Software patching and cybersecurity needs/expenses
- Constructing cost-effective tech stacks
Effective Technology Planning is The Golden Rule For Cost Savings
Through effective technology planning, you can be strategic in how you allocate your tech budget so you’re not overspending on services or equipment you don’t need. In turn, by investing in updated solutions, you can mitigate the risks of expensive, catastrophic breaks that could bury you in losses.
Invest In Your Business Growth through Technology
With rapid advancements in technology across all industries, it’s highly advisable to invest in quality technology to streamline operations and stimulate growth. Updated tools mean fewer outages, less downtime, happier employees, and an easier time managing your business as a whole.
Consult your tax professional to learn more about these tax benefits. If you're interested in upgrading your business technology, click the button below to speak with a tech expert.
