When it comes to your budget, cash reserves, and tax burden, capital expenditures (CAPEX) and operating expenditures (OPEX) can affect your company in different ways. Typically, big-ticket purchases that offer long-term value are reported as CAPEX, while year-round or short-term needs are treated as OPEX. But when it comes to your IT needs, you may be able to choose whether an expense will be a capital expenditure or an operating expenditure.
IT as CAPEX
A capital expenditure may be key to long-term growth, but this one-time expense may cut into your cash reserves. Because major improvements like a facility renovation or new vehicle fleet can offer years of value for your company, you must capitalize these expenses over time in accordance with IRS depreciation rules.
When companies make major IT purchases, such as new hardware or enterprise-level software packages, these are often capital expenditures. While IT expenses may be easier on your budget than renovating a new facility, they can still cost many thousands of dollars.
IT as OPEX
Taken as a whole, companies’ operating expenditures make up the larger of the two types of expense. However, operating expenses can be more manageable for your company because they’re usually spread out using a subscription basis which means you can write off the full amount of each expense in the year it occurs.
As technologies change and company needs evolve, many companies are finding ways to improve their IT infrastructure through OPEX instead of CAPEX. This is because vendors have begun offering IT solutions as cloud- and subscription-based services. These SaaS can include:
Technology as a Management Program
The overall affordability of product- or service-based IT tools depends on many factors. But, paying for IT services through subscription plans lets you claim more IT costs as operating expenditures. More important, this option can let your company receive ongoing updates and customer support as part of the service, which can keep it from becoming obsolete or requiring pricy support from an outside vendor.
Addressing your IT needs as operating expenditures can be a useful solution, but sometimes a capital expenditure is your best option. If your company is planning a major technology purchase or other major purchase these capital expenditure tips will help you plan, finance, and make the most of this opportunity.