What’s the biggest threat to your small business? You can choose from several possibilities, but the specter of cyberattacks should be high on your list.
Install cybersecurity measures to protect your business. Generally, these costs can be deducted under applicable federal income tax rules.
Here are four common examples of write-offs that may be available to your small business.
- Software packages. Your deduction for anti-virus software, malware or ransomware depends on the type of software you purchase. For starters, you can claim a 100% first-year bonus depreciation for off-the-shelf software. In other words, you can write off the full cost in the year the software is placed in service. Alternatively, you can choose to deduct the cost ratably over the years. In addition, you can deduct monthly costs for cloud-based solutions. If you go the extra yard and have software specifically developed or customized for your business, it is also eligible for first -year bonus depreciation.
- Firewalls. Firewall software is designed to deter hackers from invading your company’s computer system. Essentially, you’re entitled to the same tax breaks as you are with other software.
- Ransoms. Suppose you’re forced to pay a ransom to cybercriminals so you can unlock your computer system. The jury is still out on whether this expense can be deducted as an “ordinary and necessary” expense or as a theft loss, or if you’re entitled to any deduction at all. The reason?: The IRS may argue that the ransom isn’t deductible because it’s an illegal payment similar to bribes and kickbacks.
- IT compensation. Do you have an IT department or a handful of employees responsible for cybersecurity measures? The compensation you pay them is deductible like wages paid to other employees. If you use outside services or independent contractors, those costs are also deductible as ordinary and necessary business expenses.
Small Business Tax Strategies