Making the Upgrade: When to Switch Hardware
BY Damon Brown
A guide on how often to replace computer equipment, why you should upgrade and some of the tax implications.
New computing technology is released literally every day. Computers, like cars, become outdated seemingly as soon as you close the deal.
Massive upgrades of new computers or other hardware may be cost-effective for large organizations that can take advantage of bulk discounts. But small and mid-size businesses usually don't qualify for those reductions and so the purchase of new hardware needs to be decided on a case-by case basis, taking into consideration wear and tear, business needs, and your ability to write off new equipment.
"You should only upgrade for one reason: When your PC or software no longer does what you want it to do," advises Andy Rathbone, author of the book Upgrading & Fixing PCs for Dummies. "Software doesn't wear out -- unlike tires or shoes. Instead, the PC's the weak spot, and most businesses upgrade when a new PC costs less than repairing the old one."
Here's what you need to consider before upgrading your systems.
Don't believe the hype
Vendors, advertisements, and even colleagues can push for fancy, unnecessary upgrades. "In the past, people fell for the hype and upgraded simply because they didn't want to be left behind," Rathbone says. That made have some sense in the past, when computing power grew so quickly that upgrading could save a business time and money. Today, however, businesses are realizing that they don't need to upgrade every year, or even every few years.
Of course, tech-dependent companies will do more upgrades than, say, an accounting firm. "Still using word processors and spreadsheets? Then you'll be fine with PCs from the late '90s," Rathbone says. "If your business runs on specialized software -- custom sales point software, for instance -- you can keep your software package alive by replacing parts on an older PC for years."
Focus on security, not age
Assuming your business computers are still humming, the primary concern should be on whether they can run the operating system and application software your business needs. Software updates can provide new virus protection, improved functionality and extended warranties. "If you're using Windows 95, it is unsupported and is insecure," says Gary Chen, small and medium business strategies analyst at the Yankee Group, of Boston. "The general lifespan is around three to five years -- five on the long side -- but most small businesses will try to get the most out of it."
If your computers can handle a software upgrade, that may buy you a few more years of service. "Most software comes with a discounted upgrade version: If you own the previous version, you can buy the newer version at a cheaper price," Rathbone says. Windows, Quicken and many major programs offer deep discounts. Be sure to download the free, incremental upgrades regularly offered online.
Hold off on computer
upgrades until necessary
Unfortunately, computer distributors aren't as liberal with upgrade discounts -- at least with small businesses. "For 25 or less computers, there are no trade-in programs," Chen says. "With a large enterprise, you'd have that agreement with a large vendor like IBM. IBM has an asset recovery division. It is not a trade-in, but like 'These are the assets and we'll give you some money for them."
That doesn't mean smaller enterprises don't have other, less direct options. For instance, computers can be donated for tax breaks. Eco-conscious companies can also work with manufacturers to safely dispose of equipment. "Older PCs, particularly their monitors, are now hazardous waste in many states, and it's illegal to toss them in the trash," Rathbone says. Experts recommend the following programs: Dell, IBM, and Gateway.
Another consideration influencing when you should upgrade is whether you can deduct, depreciate, or amortize computers and other equipment on your business tax return. Tax benefits can help underwrite some of your costs in upgrading hardware. Certain computer purchases for business use can be deducted on your federal taxes under IRS Code Section 179, according to the IRS, but talk to an account to see if your business qualifies. If not, some of the costs of qualified computers purchased by your business can be recovered by depreciating it over a five-year period, according to the IRS. As with all tax matters, discuss the possible tax benefits of upgrading to new hardware with a tax professional before you file your return and count on the write-off.