How Cloud Computing Provides a Tax Advantage for Businesses

As more businesses switch from on-site technology to cloud-hosted solutions, many are realizing an additional benefit beyond security and convenience. Since the technology as we know it today is relatively new, businesses are just now realizing the cost savings that can be achieved by moving to a cloud-based solution.

Capital vs. Operational

Now that it’s tax time, businesses are seeing an additional potential for saving money. Traditionally, businesses have been forced to file technology expenses under the category of “capital expenses,” since the purchases were made for equipment to benefit the business.

Once a business offloads part or all of its IT operations to a third-party service provider, the expense switches from capital to operational. An operational expense is any funds a business puts into services required to run a process or system.

Deduction Benefits

Just as businesses have chosen to lease equipment rather than buy it, businesses are now realizing the same benefits exist for cloud services vs. on-site IT. The IRS places limits on the amount a business can deduct for capital expenditures, but operational expenditures have no such limits.

As businesses know, the more deductions an enterprise can amass, the better. By outsourcing IT expenses, businesses can reduce the amount of net income they’re incurring, resulting in a lower tax bill year after year.

Payroll Taxes

Another area that provides cost savings for businesses during tax time is payroll taxes. Migrating to the cloud reduces a business’s need to employ a full IT staff, which reduces the need to keep up with how much payroll tax is paid throughout the year. This also reduces the need to pay that salary in the first place, which provides a significant cost savings to any organization.

Even businesses employing hybrid cloud solutions can benefit from the tax savings that come from using third-party providers. These savings should be included for any organization as it crunches the numbers to determine whether a cloud solution is a good idea.

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