Tax season is coming up, have you utilized the best tax strategy for your technology investments?

As many companies look to close out their financial year, this is a good opportunity to review yearly budgeting for new technology purchases in the coming year. Over the past few years, there has been somewhat of a debate within the Construction Financial Management Association (CFMA) circles about the best methods to use regarding tax write-offs for technology.

Deduct Now or Later?
Should you use a tax deduction now or later? Big-ticket items such as computers, servers, and printers can be considered expensive hardware that are often used for several years while retaining varying amounts of value. Small items such as scanners, tablets, and smartphones are less expensive and can be purchased or leased in short term intervals. Companies can consider either depreciating the items, which means that you can spread the deduction over the number of years the IRS considers to be the useful life of the item, or you can simply write off the cost of an item at one time (based upon the Section 179 deduction ).

Deducting for Hardware
Many contractors have adopted mobile devices like smartphones and tablets for use in their field operations. These devices can be purchased directly from a manufacturer, a retail chain or a cellular provider. There are a few options for buying these types of items. Companies purchase handheld devices, rent them, or lease (with various stipulations and contracts). The main item to consider is does the item meet the IRS’s Standards for a legitimate deduction? Which really means that the expense is a usual, necessary, customary, and reasonable expense for your type of business. For example, a software consultant could reasonably write off a high-end computer or smartphone purchase more so than a baker or florist.

Deducting for Software
In order to fully utilize these new smartphones and tablets for use in their field operations, contractors also need cloud-based software. Construction software is unique in that can be purchased by the month or year, by the person or the project, there are even enterprise-wide deals for an entire company to consider.

Although you might use software for longer than a year, accountants generally prefer that you list it as an office expense (unless it’s a huge elaborate system that has been specially developed for your firm). Most off-the-shelf software, such as antivirus programs,  are based on annual subscriptions anyway.

It may be a good idea for your company to consider creating a technology purchase policy to guide your employees oh how best to acquire new technology. These written guidelines can be useful if an Auditor or IRS agent questions why you might purchase new technology each year for your business.