Hardware
Charles Carreon
There isn't an online business that can be run without hardware. Computers, networking hardware, video cameras, reusable and disposable digital media, copy machines, printers, all of these are things you need. There are several rules to remember when dealing with hardware. First, if you are involved in a joint venture or partnership agreement, keep track of it when anyone brings hardware to the deal. Secure your ownership interest in writing, if you have anything valuable that you're contributing to the enterprise, and be sure you have physical access (as in keys) to the places where the hardware is kept. There are several reasons for this. First off, your partner may decide that you “owe” him or her something, and decide to hold your equipment hostage until you resolve your partnership dispute. This is a common occurrence. Alternatively, your partner may pledge your property as “collateral” for a loan, thus resulting in someone else seizing the property when the enterprise fails to pay the loan. Third, the equipment may be worn, used or broken when the enterprise is done with it.
In order to keep the economy stimulated, and particularly the high-tech computer industry, the government gives us all incentives to buy new equipment. This incentive is called “depreciation.” Everyone knows that things “depreciate” over time. Last year's computer is just not worth as much as the latest model, even if it has almost the same features. Thus, when you make a “capital expenditure,” which can be loosely translated as the purchase of personal property in this context, you can turn to the federal government and point out on your tax return that the item has lost value since you brought it, and thus you are entitled to knock off a percentage of the amount you paid for the item from your taxable income. Thus, anyone who goes out and buys $10,000 worth of computer equipment to run their business and fails to deduct the depreciation on the business tax returns is throwing away money. Which is just one of the simplest reasons why every business needs an accountant.
You will notice that almost any piece of office equipment you can buy is also available for lease. While there may be good reason to lease equipment, experience shows that there are many reasons not to. If you are tempted to get into an equipment lease, please consider each of the following factors:
1. How long is the term of the lease?
2. What are your monthly payments?
3. What are all of the additional payments?
4. What happens at the end of the lease? (In many cases, you will be required to pay a termination fee, or have an opportunity to purchase what is now an outmoded piece of equipment for an inflated price.)
5. What will you be charged if you decide to terminate the equipment lease in advance of the agreed date?
When you analyze all of these details, you will almost always find that your total cost of using the machine during the expected time period is much higher than it initially sounds. You will probably decide to purchase your equipment, finance it, book the depreciation benefit off your taxes, and harvest a further tax benefit by donating the equipment to your favorite charity once the thing gets old and tired.
The one big exception to equipment leases is automobile leases. The reason is simply that, when you do all of the arithmetic indicated above, the per mile cost of leasing an automobile is less than the per mile cost of owning it. In the end, however, this is a decision for you and your accountant.
There isn't an online business that can be run without hardware. Computers, networking hardware, video cameras, reusable and disposable digital media, copy machines, printers, all of these are things you need. There are several rules to remember when dealing with hardware. First, if you are involved in a joint venture or partnership agreement, keep track of it when anyone brings hardware to the deal. Secure your ownership interest in writing, if you have anything valuable that you're contributing to the enterprise, and be sure you have physical access (as in keys) to the places where the hardware is kept. There are several reasons for this. First off, your partner may decide that you “owe” him or her something, and decide to hold your equipment hostage until you resolve your partnership dispute. This is a common occurrence. Alternatively, your partner may pledge your property as “collateral” for a loan, thus resulting in someone else seizing the property when the enterprise fails to pay the loan. Third, the equipment may be worn, used or broken when the enterprise is done with it.
In order to keep the economy stimulated, and particularly the high-tech computer industry, the government gives us all incentives to buy new equipment. This incentive is called “depreciation.” Everyone knows that things “depreciate” over time. Last year's computer is just not worth as much as the latest model, even if it has almost the same features. Thus, when you make a “capital expenditure,” which can be loosely translated as the purchase of personal property in this context, you can turn to the federal government and point out on your tax return that the item has lost value since you brought it, and thus you are entitled to knock off a percentage of the amount you paid for the item from your taxable income. Thus, anyone who goes out and buys $10,000 worth of computer equipment to run their business and fails to deduct the depreciation on the business tax returns is throwing away money. Which is just one of the simplest reasons why every business needs an accountant.
You will notice that almost any piece of office equipment you can buy is also available for lease. While there may be good reason to lease equipment, experience shows that there are many reasons not to. If you are tempted to get into an equipment lease, please consider each of the following factors:
1. How long is the term of the lease?
2. What are your monthly payments?
3. What are all of the additional payments?
4. What happens at the end of the lease? (In many cases, you will be required to pay a termination fee, or have an opportunity to purchase what is now an outmoded piece of equipment for an inflated price.)
5. What will you be charged if you decide to terminate the equipment lease in advance of the agreed date?
When you analyze all of these details, you will almost always find that your total cost of using the machine during the expected time period is much higher than it initially sounds. You will probably decide to purchase your equipment, finance it, book the depreciation benefit off your taxes, and harvest a further tax benefit by donating the equipment to your favorite charity once the thing gets old and tired.
The one big exception to equipment leases is automobile leases. The reason is simply that, when you do all of the arithmetic indicated above, the per mile cost of leasing an automobile is less than the per mile cost of owning it. In the end, however, this is a decision for you and your accountant.