Tax season is in full swing as companies and individual taxpayers scramble to complete their federal and state returns. As companies contemplate their bottom line for the year, executives are looking for ways to get the most value from every asset. That’s where tax breaks come in: Business owners can use the money they save there to reinvest in their companies, and occasionally, the savings can make the difference between success and failure for the rest of the year.
While many business tax breaks are well-known, sometimes the best write-off and refund strategies come from an unexpected source. Technology can be a great source of tax savings, including deductions on mobile devices, software, technology systems and connectivity costs. Here are some tips to keep in mind when looking for tech tax incentives:
Efficient Office Space Deductions
Most people don’t immediately think of technology when they focus on efficient office space deductions, but the two can be related; structures frequently serve as the technological infrastructure backbone, and if the company has built an energy-efficient brick-and-mortar space to house key infrastructure, it could pay off at tax time.
The 2005 Energy Policy Act addresses energy-efficient commercial buildings in section 179D. Qualified businesses can claim $1.80 per square foot in deductions, provided the space meets the Act’s guidelines. Your building may be eligible if it was built or retrofitted after 2005 and your company submits to a third-party energy tax study.
You may qualify for other subsystem deductions as well for eligible HVAC configurations, interior lighting and the building envelope. Each of these items can qualify for up to $0.60 in deductions per square foot.
Depending on its size, your building can offer substantial deduction opportunities.
Software, Internet Connectivity and Mobile Devices
Virtually all companies use hardware, software, the Internet and a variety of business applications these days, and many incorporate smartphones and tablets into their daily operations as well. These technologies not only bolster business performance and expand company capabilities – they can yield substantial tax savings, as Turbo Tax notes.
Companies have a choice on how they structure their deductions for technology assets. Michael Carney of MCW Accounting told Turbo Tax that administrators and accountants can take depreciation and the percentage of time devices are used for work into account when choosing a deduction strategy. Businesses can also structure depreciation to their best advantage, spreading the deduction over time according to IRS guidelines, or they can write off the entire cost in the year the item is purchased.
Carney notes that the optimal choice depends on projected income and other expenses. IRS guidelines specify that technology systems and devices qualify if they are part of a “usual, necessary, customary and reasonable expense” for the type of work performed. If your tech items qualify, you can reap major deductions.
Tax Deals from Local Governments
If your business makes major contributions to your local community – bringing jobs and economic development, for example – you may be able to come to an agreement with your local government for a substantial tax break. San Francisco struck this type of deal with major technology firms to establish the city’s presence as an emerging tech marketplace.
One beneficiary was Twitter, which pocketed a major tax break. San Francisco benefited from supporting the local tech scene as well, becoming an epicenter of innovation and reaping the financial and cultural benefits of a large, diverse, highly educated and growing tech workforce. To qualify, the companies donated volunteer hours, pledged support for local nonprofits, and agreed to specialized purchase thresholds to benefit other businesses in the area.
The Bottom Line on Tech Tax Incentives
The US tax code is complex – it contains about four million words, according to a taxpayer advocate. When business owners consider their deductions at tax time, most think of commonly deducted items like automobile fleets. But technology assets can be a great way to save a substantial amount on your taxes too. So when tax time rolls around for your business, make sure you’re getting every break you’re entitled to, including tech tax savings.