Ten Tech Tax Tips for SMBs

Thursday Dec 18th 2003 by SmallBusinessComputing.com Staff
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Small business owners are faced with increasingly complex tax issues. HP and H&R Block tax professionals offer these 10 tips to help you generate savings on your technology investments and minimize your tax burden.

Hewlett-Packard and H&R Block have teamed up to offer a ten tax tips for small- and medium-sized businesses. SMBs have the opportunity to take advantage of changes in the tax code, particularly with this year's amendment to IRS Section 179. This is the law that now allows businesses to deduct upfront a maximum of $100,000 for new equipment bought and put into service during the calendar year.

1. Replace Your Older Technology Now
Now that Congress has increased from $25,000 to $100,000 the amount small businesses can write off on new equipment purchases, use the tax break to invest in new technologies. The increased allowance, known as the section 179 deduction, is available only through 2005. After that, the deduction will again be dropped back down to $25,000, as adjusted for inflation. The deduction phases out dollar-for-dollar for purchases over $400,000.

Small businesses that take advantage of the tax break also will realize enormous savings when they replace older equipment. PC prices, for instance, have dropped more than 40 percent since 2000 and the costs of software and other high-tech equipment such as printers and servers aren't far behind.

2. Depreciate Computers and Electronic Equipment
Even if you use a computer or other gadgets — such as handhelds, scanners, and copiers — for personal purposes, you may be eligible for a limited depreciation deduction if you use those items for business. Computing depreciation can be a little tricky though. Make sure to check out IRS Publication 946 or see your tax advisor.

Furthermore, if you have not claimed depreciation deductions to which you were entitled in prior years, you may be able to claim "catch-up" depreciation on your current year return, without amending past business or personal returns.

3. Use Your PC to its Best Advantage
Use your PC for bookkeeping and other small business processes that can help to increase your productivity and streamline operations. While you're doing this, make sure you have a system in place that tracks your usage of your technology. Depreciation can be limited if usage of the equipment for business purposes is below 50 percent.

4. Look into Bonus Depreciation
Examine your capital asset depreciation. Look at components of your new and existing facilities, including technology, to determine their eligibility for the 50 percent depreciation bonus available the first year of service on certain capital assets acquired after May 5, 2003, but before Jan. 1, 2005. The bonus depreciation applies to most equipment, machinery, and office furniture.

5. Take Advantage of Special Lease Programs
Leasing technology equipment allows you to expense IT equipment rather than purchasing a depreciable asset. Small businesses that may not have the cash to purchase sufficient equipment can even triple what their budget would ordinarily be able to support. For example, a business could lease nine PCs for the same cost of buying three of them.

HP, for example, is allowing its customers up until Dec. 31, 2003 to choose from a Smart Combo Lease Rebate, zero percent lease rate, or deferred payment until 2004.

6. Take Security Precautions
Avoid being the latest victim of identity theft and make sure your PC and its software is up-to-date. If you choose to file your tax return on line this year, you should make sure you're not storing this personal financial information on an inadequately secured PC.

7. Recycle Your Technology
Many states offer a tax credit for individuals and corporations recycling equipment equaling a percentage of the installed cost of the equipment. Make an environmentally responsible image for your company by using a computer recycling service and applying this credit to your return.

Most major computer vendors offer services to customers that allow them to return any piece of computer hardware through a simple take-back and recycling program. In addition to its standard recycling program, HP offers an acquire-to-retire asset management services to help small businesses manage their IT investments cost-efficiently, and dispose of them when it is time to move to the latest technology.

8. Donate Your PC to Charity
Contribute overstock or excess goods in your inventory to a charity that will use them as part of its exempt functions. You can trim bloated inventory and obtain a tax deduction, as well as earn some goodwill in your community

Your deduction is limited to the lower of your adjusted basis (generally your cost less depreciation) and the fair market value of the equipment.

9. Check Your Eligibility for the R&D Credit
You may be able to take a 20 percent credit for the cost of technology research intended to be useful in developing new or improved business components. The R&D tax credit encourages investment in basic research that over the long term can lead to the development of new, more cost-effective, and more efficient technology products and services.

10. Pay Family Members
If your spouse or other family member works for you, be sure to pay him or her an appropriate wage. The salary paid to a family member is a business deduction. Family members can assist you with bookkeeping, administration, marketing, and other aspects of your business. Your teenager may be the perfect IT specialist for your company.

Remember, this information is general in nature and based on tax laws that are subject to change. As always, speak with your accountant before leveraging any of the tax options discussed here today in order to make certain you are making the most of this year's tax allowances for your small business.

Do you have a comment or question about this article or other small business topics in general? Speak out in the SmallBusinessComputing.com Forums. Join the discussion today!
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