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Staying in Accounting's Good Books

Let’s face it, IT managers and accountants don’t always speak the same language. But something that will always perk up your accountings ears and help gain their buy in on big projects is understanding and leveraging "amortization". Read along to learn more about what it is and how to use it when budgeting and creating proposals.

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Amortization vs. Expense: The Basics

Amortization spreads the cost of an asset over its useful life, ensuring financial stability and a clearer view of ROI.

• ‍Example: Purchasing a new enterprise software license for $100,000 with a five-year usage agreement.

Expenses are one-time costs that hit the books immediately, often reflecting short-term usage.

• Example: Paying for cloud storage on a monthly subscription.

Understanding which category an IT expense falls into - and presenting budgets and projects with this in mind - is important to being a successful IT leader.

What IT Expenses Can Be Amortized?

1. Big-Ticket Software Licenses

Got a multi-year license or a perpetual license for your favorite ERP? Those costs can be amortized.‍

• ‍Example: A $500,000 software license that’ll keep your business humming for five years.

2. Hardware Investments

Think servers, high-end workstations, or storage array. They’re assets with a lifespan, so depreciation (a cousin of amortization) applies

• ‍Pro tip: Don’t forget to check your company’s capitalization threshold.

3. Custom-Built Software

That in-house app you’re building to automate workflows? The development costs can likely be amortized - if you see it through to completion.

4. Major System Implementations

Rolling out an enterprise-level CRM or ERP? Those upfront setup costs can usually be spread out, assuming the system’s meant to last more than a year.

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What IT Expenses Can Be Amortized?

1. Subscriptions and Maintenance Fees

SaaS platforms, annual maintenance agreements, and support contracts.

• ‍Example: Microsoft Licenses

2. Low-Cost Assets

Items below a certain capitalization threshold set by the company.

• ‍Example: Basic peripherals like keyboards and mice.

3. Research and Preliminary Software Costs

Feasibility studies or prototypes that don't result in a final product.

4. Consumables and Supplies

Printer paper, cables, and backup tapes.

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Bonus: How to Make Your Accounting Team Love You!

Know Your Company’s Capitalization Policy

• Each organization has rules dictating which assets qualify for capitalization. Consult this policy before making large purchases.

Communicate Project Plans Clearly

• Share details about implementation timelines, expected ROI, and asset lifespan.

Collaborate on Budget Planning

• Bring accounting into the conversation early during annual IT budget cycles to align on expectations.

Use Clear Documentation

• Provide invoices, contracts, and vendor details in a format that aligns with accounting standards.

Be Proactive About Reviews

• Regularly revisit long-term assets to confirm they’re still being accounted for properly.‍

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The Bottom Line

Mastering amortization vs. expense isn’t just for number crunchers—it’s your ticket to smoother budgets, fewer surprises, and a much happier accounting team. Plus, it shows you’re not just an IT wizard—you’re a strategic thinker who understands how dollars and tech intersect.