2015 tips for advisers’ tech and taxes

Keeping track of technology goes far beyond staying on top of trends for advisers — it also entails saving a few dollars when tax season comes around.

As with all tax situations, there are strategies for advisers to consider when claiming their business technology purchases. Some advisers might decide to depreciate the costs over time or claim it as a general operational expense, but many advisers opt to deduct their software and equipment under the Internal Revenue Service Section 179.

“It is better generally, from a tax standpoint, to reduce taxes upfront rather than later on,” said Chris Chen, a financial adviser at Insight Financial Strategists in Waltham, Mass. For him, the decision is also based on efficiency. “I am not in the business of trying to keep track of depreciating.”

“The simpler it is, the better it is,” he said.

Under Section 179, advisers may claim software or hardware that was purchased or financed for business purposes and used for an income-generating activity, said Tanya Ouellette, a certified public accountant at Raiche & Company in Dover, N.H. Subscription-based software does not count, nor does any technology that was heavily modified for customization.

“Typically, what companies do is they set a limit of what their capitalizing costs are going to be,” Ms. Ouellette said, adding that anything above the threshold would be claimed under Section 179 and anything below would be expensed. For example, if a firm made the limit for capitalizing costs at $500 and bought a $2,000 laptop and $400 printer, the laptop would be claimed under Section 179 and the printer would be considered an expense.

The deduction limit for Section 179 in 2015 is $25,000, down from $500,000 last year. In previous years, the IRS has retroactively reinstated the limit on Section 179.

“[It] has tightened up but for most adviser software, it is usually well under that limit,” said Steven Stanganelli, a financial adviser with ClearView Wealth Advisers in Amesbury, Mass.

An advisory firm cannot create a loss under Section 179. Anything that goes beyond the amount of profit a firm generates must be depreciated over a scheduled time period. Computers, for instance, have a life of about three to five years.

Write-offs are easier than depreciating costs, especially when technology is constantly being outdated and improved, said Steve Burkett, a financial adviser with Palisade Investments in Bothell, Wash.

“I would say for the most part, taking it now is the way to go,” Mr. Burkett.

The only instance where this would not be true is if it is a newer advisory firm, which could offset costs with a depreciation over the next few years.

“It might make sense to allocate in the future if there is an expected higher income in the future or if tax rates are going up,” he said.