We’re heading into the last quarter of the year and it’s time to start thinking about deductions for your 2020 business taxes.
Knowing the tax rules and allowable deductions and depreciations on technology purchases can mean that a much-needed upgrade actually costs less than you think due to the tax breaks.
Tax deductions under Section 179 of the U.S. Tax Code create an opportunity for New Jersey business owners to fill certain needs in their business, for both equipment and software, and get a decent tax write-off to help offset the purchase.
This is the perfect time to work with a technology pro to see what you need to keep your business efficient and boost productivity.
- Have you been wanting to automate some processes with better software?
- Do you have some computers getting old and slowing down?
- What about your cybersecurity needs to keep you safe from a data breach?
- Is a remote work team in need of technology to operate more effectively?
These are all questions that you should ask and can help you decide which year-end technology purchases will give you the most bang for your buck.
What Technology Tax Deductions Can You Take?
Here is a rundown of Section 179 and how you can take advantage of it to reduce your tax burden and update your technology.
Equipment and Software Purchase Deduction (Up to $1,040,000)
You can deduct the full price of any new or used equipment or software that you buy or lease in 2020 up to a total of $1,040,000.
Software has to be publicly available and not custom-designed, and be used for your business to be eligible.
For any small business, this can mean a decent savings on technology investments made this year.
The average small business tax rate is 20-25%, so a purchase of $25,000 in equipment and software to upgrade your technology could mean up to $6,250 less tax burden you’d have to pay to offset the purchase.
100% Bonus Depreciation
Businesses don’t always get to take a bonus depreciation on purchased equipment, but in 2020 they will. They can take 100% of the depreciation rather than having to take a smaller percentage for several years. This gives you the benefit all upfront when the equipment is still new, to help offset the purchase price.
Depreciation can be taken on both new and used equipment purchases, and is generally taken when the deduction limit is reached or in lieu of it. For used equipment, it has to be “new to you” and purchased in 2020. The spending cap is $2,590,000
What Qualifies for a Deduction?
Under the Section 179 deduction, you can deduct the purchase price of the following business items:
- Equipment
- Machines
- Business Vehicles
- Computers
- Office Equipment
- Software
What Technology Upgrades Should I Consider?
There are many different areas of technology that you can consider when planning purchases at year-end to take advantage of the savings related to tax breaks.
IT Security
The average cost of a data breach for a small business is $200,000. Many companies end up going out of business after a cyberattack and never recover.
One area of your technology that’s vital to keep updated is cybersecurity. This may mean protections like an advanced firewall or VPN software to ensure remote workers are secure.
You may also want to look at data backup and recovery systems that can ensure your business is resilient in case of a ransomware attack or other data loss incident.
Automation & Productivity Tools
If you enable your team to do more through automation and productivity tools, you not only save money, you fuel your future growth.
Look for all-in-one productivity suites (like Microsoft 365) that provide several integrated tools in one and help streamline workflows. The data sharing in these all-in-one tools also enables automations that can eliminate time-consuming manual processes.
Customer Experience Software
Happy customers mean more sales. One type of technology to look at are tools that can improve your customer experience.
Look at things like:
- Chat software
- Advanced CRM programs
- POS devices that allow for “contactless” purchases
Remote Team Support
When the pandemic hit, most businesses had to send employees home to work without a supportive infrastructure in place. Take the time now to do remote teams right by looking at hardware or software that can help them be more efficient.
This may include things like:
- VoIP software
- Headsets for VoIP desk phones
- Team messaging & collaboration software
- Remote computer support
Future Technologies
Some of the technologies that are most promising for the future or have just recently come out can help you get a leg up on your competition.
Look for purchases in the areas of:
- Wi-Fi 6 routers or mesh networks
- 5G enabled devices
- IoT devices (sensors, smart lighting, security systems, etc.)
Need Help Choosing the Right Year-End Technology Purchases?
Two River Computer’s team of experts can help take the guesswork out of year-end technology purchases. We’ll sit down with you, look over your entire technology environment, and let you know which investments will bring the most value.
Contact us today to learn more. Call 732-747-0020 or reach us online.
