The Best Time to Buy Software is Now

I;s always a good time to take steps that can help your business run more efficiently. Now, however, is a great time to invest in this technology, and her-s why.

Increasing efficiencies
While it can cost you upfront to get the software you need, it can save you money in the long run. Software leads to greater efficiency that can help you cut your overhead costs. For example, many businesses during the recent Great Recession found that they could operate well with fewer employees and be even more profitable. Why? Software improved their operations. As tough economic times continue, the need to run leaner and meaner is vital to survival.

Basic applications needed for any business to operate depend, in part, on what the business does. For example, if the business is service-based, it wo-t need applications to manage inventory, which it does't have.

When getting started, a business usually needs only certain types of applications to operate. These include accounting/financial software, such as *QuickBooks, to track income and expenses, and customer relationship management (CRM) products, such as *SalesForce, to manage information on customers and prospects.

. As a company grows, it can benefit from using an integrated software solution, such as *SAP Business One, which uses a single platform for financial information, purchasing, warehouse management, and CRM, as well as customized add-ons, so data can be entered once to populate all relevant programs. This type of software costs more than products you can buy in office supply stores or online, but runs faster and more efficiently than using separate programs for each process. For example, one Utah-based specialty foods company with 21 employees using this software was able to reduce its purchasing processes from 1.5 days to 3 hours.

Writing off the cost of software
How you obtain the applications you use affects the way in which you handle the cost for tax purposes. Today, the term'softwar' is an umbrella term used to cover both products installed on your computer as well as applications accessed exclusively online 'cloud computin').

If you use applications through cloud computing that you pay for on a subscription basis (so much per month or year), like your rent check, you can deduct the fees in full as an ordinary and necessary business expense.

¢ By purchase. If you buy the software, normally you are required to write off the cost over a period of 36 months. However, for software purchased before the end of 2010, you can opt to deduct the cost in full as a Sec. 179 deduction (Congress could extend this break after 2010, but it has not done so yet). There is a dollar limit of $250,000 this year, which won't pose a problem for most small businesses. However, this deduction only benefits a company if it's profitable; otherwise it uses the 36-month write-off.

Keeping better records
The IRS is continuing to track down small businesses and self-employed individuals who fail to report the income they receive or who are taking deductions to which they are not entitled. *Audit statistics back up this trend. Also, the IRS recently released an audit technique guide on cash-intensive businesses to instruct its auditors on how to go after such businesses as bail bonds, beauty shops, car washes, check cashing establishments, coin operated amusements, laundromats, scrap metal, and some convenience stores where cash payments may not be reported in full.

To protect yourself, make sure to maintain all of the financial records required (see examples of software for the purposes, above). The IRS has provided guidance on the types of records to keep for business purposes.

In order to handle recordkeeping responsibilities properly and avoid problems, software can be a big help. It facilitates data entry so income and expenses are recorded in appropriate categories for tax purposes. Remember, of course, that the records you keep are only as good as the information you input.

Final thoughts
Before selecting software, talk to the experts. Ask your accountant which program he/she prefers. Discuss software choices with your IT advisor to make sure you can run them on your system.

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Barbara Weltman is an attorney, author of several business books including J.K. Lasser's Small Business Taxes, and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and her monthly e-newsletter, Big Ideas for Small Business® (both are available at www.barbaraweltman.com), and host of Build Your Business Radio. Follow her on Twitter.

About the Author

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser’s Small Business Taxes and The Complete Idiot’s Guide to Starting a Home-Based Business, and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for 2011 and 2012. Follow her on Twitter: @BarbaraWeltman.