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Technology and Business Taxes

Ben Erickson  January 23 2020 07:05:00
Ben Erickson
One of the more interesting ways your technology decisions can impact your bottom line is how you capitalize your expenses, which relates to Section 162 of the Internal Revenue Code. By default, you usually have to capitalize and depreciate your major expenses for any tangible property like routers, switches, or servers. Depreciating means you are spreading out the tax effect of that expense over several years instead of the year in which it was purchased. With many technology expenditures, it makes sense (but check with your tax preparer first) to fully expense them in the year they were purchased and have the full benefit of that tax deduction that year.

What is the de minimis safe harbor election?


The de minimis safe harbor election is an attachment that is made when filing your taxes which states that as permitted under Section 1.263(a)-1(f), your business will be taking the option to fully expense tangible property purchases up to $2500 (for each tangible item) in the current year. This does not mean you can't capitalize those expenses, it just means that you can do it. If you have an AFS (applicable financial statement, see your tax preparer), then this amount can go up to $5000. Here is a
link to the IRS Website's web page regarding the de minimis safe harbor election.

Once again, you'll want to discuss this with your tax preparer, but it's safe to say in general that this option provided by the IRS, when taken advantage of properly, can reduce a lot of administrative overhead and taxes for many small businesses!

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