Small businesses often experience a blurring of the lines between a business asset and a personal asset.
Business owners, for example, may use their smartphones and notebook computers for both business and personal use. It’s important to deduct only the percentage related to business use — whether it’s 60 percent or 90 percent.
“The IRS is paying more attention to this, so you should document your usage and only deduct the percentage you use,” says Jaime Campbell, a certified public accountant for Bartolomei Pucciarelli in Lawrenceville, N.J.
In addition, businesses that subscribe to hosted software cannot deduct it using Section 179 of the tax code. “This type of expenditure is typically not considered an asset in the first place and is generally deducted as an expense,” she explains. “Depreciation does not come into play.”
At year’s end, businesses should talk to their accountants about their technology needs. If something they need will help them on their taxes, they should consider making year-end purchases to take advantage of Section 179, says Neil Johnson, a certified public accountant and partner with the Dolins Group in Northbrook, Ill.
“Let’s say a business needs four computers and is looking to upgrade. Who’s not running a deal on computers [at the end of the year]? So you might save a few bucks on the purchase, in addition to the deduction,” Johnson says.