Can moving to the cloud reduce the tax burden on your small business?

There are lots of great reasons to move your small business (SMB) to the cloud, not the least of which are the ability to easily scale as customer demand grows, and do so without needing to employ an extensive IT staff. But a new blog post reveals another potential benefit: Moving to the cloud might save your company money the next time tax time comes around.

“With on-premise, the purchase would be considered a capital purchase and subject to depreciation,” says Donny C. Shimamoto, CPA for Microsoft Partner IntrapriseTechKnowlogies. “Depending on the circumstance, SMBs may be able to qualify for a Section 179 deduction that allows them to subtract the full price of the purchase. However, cloud subscriptions are generally treated as operating expenses, so are not capitalized or depreciated, but directly deducted as an expense.”

This translates to an economic benefit for the SMB, the post explains. For example, if an SMB has maximized its Section 179 deductions for the year, it wouldn’t have the option of deducting the entire purchase price of an IT asset. The business would still have to spend the cash and could only claim deductions as the asset depreciates. With a cloud solution, SMBs can deduct as they go. There are exceptions and potential limitations in either case, so you should consult with your tax advisor to analyze your specific circumstances and options.

Read the blog post for further thoughts on how to align your technology to your company’s financial objectives. Of course any allocations you make should be determined with the guidance of an experienced consultant, but the post gives you some valuable topics to explore with the expert you hire.

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Steve Clarke
Microsoft News Center Staff