How do I account for software on my taxes?
Good news, everyone! The future is here. Small business owners, despair no more. Help is on the way. Seriously, though, 2006 was a good year for small business owners. 2006 saw the instillation of the "Section 179 deduction." And what, pray tell, is the Section 179 deduction? It's just this. The Section 179 deduction means that you can deduct up to 108,000 dollar's worth of business equipment and software so long as you buy it, install it, and use it by the end of the year. Good news, indeed. That's quite a lot of savings.
Quite a lot of savings means it's time to get on the ball. Rest assured, however, that the Section 179 deduction is good throughout 2007 as well, and in fact boasts slightly higher rates. That means that you should go ahead and get whatever you need for your office. You should get whatever your small business currently demands, including expensive software. For the small businessperson, all business-related software is a write-off come tax time. Software is constantly changing, you're constantly needing to update it to keep your edge and stay abreast of your competitors. You can keep up with those changes, and know that the significant taxes imposed are going to return to your benefit rather than simply line the pockets of the government. You should research different software options carefully, of course, and work with your accountant to properly take advantage of the Section 179 deduction before the year's end. Here are some more tips on taking advantage of this great opportunity:
|
|
Stock up, stock up, stock up. Make sure that you have your much-needed business software and equipment NOW rather than later. This isn't something to put off. Putting off taxes, that tedious process, is understandable, but in order to take advantage of whatever bone the IRS throws you you've got to move quickly and intelligently.
Think big when it comes to taking advantage of the Section 179 deduction. Sure, you need computer equipment and software and so forth. But do you really need 108,000 dollar's worth of software? The answer is, most small business don't. So, be creative. What else besides software and equipment does your business require? How can you really use that 108,000 dollar loophole before the end of the calendar year? Well, perhaps you could start with the idea of a vehicle. Most businesses, at some point or another, require a vehicle to carry owners and employees to important meetings (whether local or out of state), haul heavy equipment, and so forth. If you're currently using your personal vehicle for such projects, you're adding a lot of wear and tear on it for nothing. Or, rather, you're adding a lot of wear and tear on it for valuable dollars that should be going somewhere else. If you were to purchase a vehicle that you planned on using solely for business purposes, you could include it along with your equipment and software when trying to figure out your tax write-offs.
Be cautious, however. If you only plan to use your new vehicle for, say, 70% of your business purposes, and are going to use it recreationally 30% of the time, then you can only account for 70% of the vehicle's worth on your tax forms. The government tends to look very, very closely at these things, and you want to be accurate to say the least. When accounting for your business equipment and software come tax time you need to be meticulously honest and careful. If you're using your business equipment (including vehicles) and software 100% of the time, fine. But if you plan on using it for other things you've got to make it obvious when you report your taxes.
