Taxation of business expenses can be a murky and confusing topic for even experienced managers. Tax deductions are intricate, specific to the situation, and sometimes even metered out over a long period of time. When discussing the tax benefits of hardware as a service, the first and most important thing to know is the difference between capital expenditures and operational expenditures, which are two distinctly different types of expense that are taxed (and counted as deductions) in different ways.
Capital expenditures are purchases that carry primarily long-term benefits for a business. Examples of capital expenditures include new buildings, renovations, new and improved computers or production equipment like cameras and video software, and more. They may have some immediate benefits, but the vision behind the purchase is long term.
On the other hand, operational expenditures are the costs associated with the daily operations of a business. These include wages, maintenance, utilities, and pretty much every other normal expenditure that comes into play on a routine basis. Because operational expenditures are limited to immediate benefits, the entire associated tax deduction counts during the current fiscal year. This differs from capital expenditures because the tax deductions for capital expenditures must be drawn out over several years to reflect the long-term nature of the benefits such expenditures provide.
When working with information technology, going it alone racks up a lot of capital expenses. Setting up servers, maintaining storage, and managing hardware that you own (and all the hassles that go along with it like software updates, damage protection and more) will all count as capital expenditures, and can only be deducted from tax obligations incrementally.
Hardware as a service, however, is considered an operational expenditure. Because your business is paying to use hardware owned by a third party and not purchasing the hardware itself, hardware as a service can never be considered a capital expenditure since the benefits would end in the short term if a payment was missed. Unless your company’s needs are so demanding or complex that a third party IT service provider isn’t practical, your business can deduct more from its taxes by taking advantage of hardware as a service.
Besides the surprisingly generous tax benefits, hardware as a service has a number of other notable benefits for your business. First, working with an IT service provider guarantees that the people managing your hardware are professionals familiar with industry standards and all the latest trends. Secondly, it guarantees that specialists are managing your hardware needs around the clock without being on your payroll – in other words, outsourcing IT gives you access to all the perks of in-house IT personnel at a fraction of the cost. Finally, it removes the need to constantly maintenance and update your hardware, since whatever provider you’re working with is already on it.
Hardware as a service is a cost-effective way to help your business punch above its weight and get the most out of the tax code. We’d love to sit down with you and discuss your needs, then determine which of our offerings can give your business the edge you’ve been looking for. Give us a call today to find out more.