Its no secret, running a business is expensive, most new startups won’t see a profit in their first year or more. You may be intimidated and hear a lot of people say, “that’s the cost of doing business”. Its true, but it doesn’t all have to be a negative expense. There are a multitude of ways to let your technology and new business needs work for you. A lot of people are intimidated by, or just unsure of how to write off technology expenses for their new business. While this isn’t a comprehensive IRS guide, the following should help alleviate the trepidation of starting a new or small business venture.
One of the most important things to remember is to buy your electronic devices from a trusted source. Purchasing new isn’t always an option, especially on a budget, but if you can, make sure all the devices you acquire to run your business come from a certified vendor/distributor. The same goes for software. There are many types of software your business may need, such as accounting, retail, time-tracking, inventory, and billing, just to name a few. A lot of these are offered in bundles and while a slick sales approach is tempting make sure you do your independent research on which software will help you succeed without paying for services you may not need. The key to writing off your technology expenses is being able to prove (and show) that they are used explicitly for your business needs. For example, if you purchased a new laptop to run your business you may be tempted to try and claim the expense for 100% on your taxes, but this may not be proper. If you’ve ever checked your personal social media or responded to a personal email on your business laptop then you cannot claim it as a 100% business expense since there is now a personal use component. The intermingling of technology and business as it relates to taxes is still growing and the IRS is doing its best to keep up with the changing technologies. Another example would be something like a tablet or iPad. If you work in a design consulting industry that constantly has you on the move meeting with clients, then it would be expected that your business would need one or more computer tablets to function, and the IRS takes this into consideration when you make your claims. If you were in a landscaping business and tried to claim several computer tablets, then you could possibly be challenged on the claim due to the nature of your business as a multitude of tablets may not be needed to run this particular type of business. This applies to software as well, you will need to be able to demonstrate that it is an expense needed in the ordinary course of business.
Proving anything to the IRS can be intimidating but it’s not as bad as it appears. Always save your receipts, any purchase you make for your business should be well documented. Start a budget spreadsheet or basic tracker just to centralize and document every penny that went towards your business technology needs. Include a description of what you are making the purchase for and how it will impact your business. The one true key to claiming tech expenses on your taxes is proving it was necessary to conduct your business efficiently. The way to prove that is with documentation, it may seem tedious or unnecessary but it’s a very easy and surefire way to make sure you get all the deductions you can. The goal of your new business is to make money, so while the old saying will always be true “it costs money to make money”, don’t forget about the more important saying of “let your money work for you.”
With all that in mind, there are also a few tips we can give about how to properly move your business into the new technological generation. Here are a few examples of software technologies that could be written off almost completely within any business. Budget and project management; any software that helps you track every penny of your business is a worthwhile expense. Budgeting software helps give you true, tangible data you can review to see exactly where your money is going and how it’s working for you. It is very similar to a project tracker. If you have multiple client engagements and projects that happen simultaneously, then a management software may be perfect for you. It helps to keep you and your team on track, shows achievable goals and progress markers, and helps take the worry out of forgetting something important for those projects. If you find yourself jumping from task-to-task daily management software could be just what you need to make sure your time is being spent efficiently. Another important tech tip is to look for the free software! Now this doesn’t mean trying to find a free version of an expensive software to download as that could lead to its own security/virus problems. What we mean in the tech world by free software is free learning and management sites. There are a plethora of business software options, but what most people don’t realize is that there are almost always a free, albeit pared down, version of that software that is available to you. You’ll have to do your proper research, but that is a tool a lot of new small businesses overlook. Same goes for Microsoft Office bundles. It may seem like an unavoidable expense, however there are options for “free office” that Microsoft can offer you as well. The key is, as with everything, to do your due diligence and apply objective thinking. Technology can be overwhelming, starting a new or small business can seem impossible, throwing the two together can seem like an insurmountable hurdle, but it is not. If you’re willing to take that step into the unknown to start you may as well take a few more to learn about what best applies to your business and how you can make a big data purchase and turn it into something worth more than the sum of its parts.