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New tax laws benefit SMBs

A section of the American Jobs Creation Act of 2004 allows SMBs to write off $100,000 in new equipment purchases. So what technologies should CIOs buy to take advantage of it?

A section of the recently passed American Jobs Creation Act of 2004 may benefit small and medium-sized businesses (SMBs) by allowing them to continue writing off new equipment investments. One analyst said CIOs would be wise to focus those investments in one particular area -- security.

The bill, which President Bush is expected to sign, contains a section that allows SMBs to write off up to $100,000 in new equipment purchases -- items such as technology equipment, computers, copiers and even desks and chairs. This bill continues a tax law enacted in 2003 that raised the tax deductible amount of such purchases from $25,000. The figure was supposed to revert to that lower amount in 2006, but Congress decided to keep the limit at $100,000 through 2007.

The Information Technology Solution Providers Alliance, a Dallas-based nonprofit group that helps SMBs use technology and local service providers to deliver business growth, said the law will permit SMBs to realize enormous savings.

For example, a business that pays 35% of its profit in taxes would save $35,000 if it spent the full $100,000 on technology and office equipment. That is like buying $100,000 worth of goods for $65,000.

ITSPA President Russell Morgan said in a statement that the law builds on falling technology prices to allow SMBs to reduce their costs while they grow and increase profits.

"PC prices have dropped more than 40% since 2000, and prices on software, printers and servers also are much lower," Morgan said. "Buying new technology now gives SMBs a real advantage by providing them with similar reach and capabilities as larger companies."

But at least one analyst said SMB CIOs looking to make deductible investments in 2005 should focus their dollars on security rather than hardware.

SMBs always seem to be upgrading their servers and computers, according to Christine Liebert, senior analyst for SMB strategies at Boston-based Yankee Group. Instead, they need to focus on the stability of their data because their core business could fail if their data is compromised.

"Many SMBs don't protect themselves as well as they should and just aren't prepared for viruses, worms and hackers -- they feel like it's not going to happen to them," she said. "But if their network is down for two days or more, some of them won't ever recover."

Liebert said vendors are doing a good job of making security products that are easy for SMBs to use and integrate, but she said there are almost too many products out there -- so many that CIOs might be suffering from information overload.

"The vendors' message needs to be clearer," she said. "Once CIOs find out what their security priorities are and how much risk they can live with, there are plenty of vendors out there that can help them."

Several CIOs interviewed said they are bulking up their infrastructure so that they can take advantage of hot technologies such as network-attached storage (NAS) and voice over IP.

"We're looking at NAS for backups rather than constantly plugging and unplugging," said Carl Tyler, chief technology officer of Durham, N.H.-based Instant Technologies Inc., an instant messaging solutions provider.

Sandy Hofmann, CIO of Mapics Inc., in Alpharetta, Ga., said her company has made considerable investments in IT infrastructure lately in anticipation of new technologies that might drive the business. "Our intent is always to look out for what our infrastructure needs to support new technologies or business conditions," she said. Mapics already has a solid foundation to take advantage of wireless technologies. "Our employees can log in from any Starbucks in the world," she added.

Unfortunately, some SMBs are layering in the new techs without shoring up the foundation first, which can cause some real problems.

"They'll never see the ROI of these new technologies because they didn't form a solid foundation of a managed reliable network before they started adding all the new stuff," said Shane O'Donnell, vice president of marketing at Oculan Systems Inc., a Minneapolis-based maker of infrastructure and security management devices for SMBs. He said he's seen more than one IT worker receive a pink slip after the technology they championed fizzled into just another expense.

O'Donnell recommends SMB CIOs invest in local partnerships to assess both their network design as well as their security needs. "You need someone who sees the bigger picture to point out the easy things you can do to shore up," he said.

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