How time tracking data can benefit CAPEX vs. OPEX

Businesses have different ways of categorizing expenditures. In the context of time tracking, two of the main categories we focus on are CAPEX (capital expenditures) and OPEX (operational expenditures).

CAPEX, or capital expenditures, occur when companies acquire new assets or add some value to the existing assets. For instance, all R&D (design, development, function, and technical requirements) and configuration work leading up to technological feasibility is CAPEX. The end result is an asset: software, hardware or infrastructure.

On the other hand, post-implementation or development phase is OPEX, or operational expenditures, because they are considered day-to-day running costs. Business as usual. 

Having to determine expenditures, CAPEX vs OPEX, while having ever changing market conditions, most managers prefer CAPEX over OPEX because they can take advantage of amortization and depreciation of investments. On top of that, it can be beneficial to prefer CAPEX over OPEX since tax benefits can include R&D tax credits. Innovations and R&D costs can also be deductible.

How time tracking data can benefit CAPEX & OPEX

Firstly, let's talk about time tracking in general paired with more accurate and transparent accounting. Without time tracking, companies might lack transparency and a clear overview of their projects’ expenditures throughout the organization. 

Secondly, time tracking provides a way to better manage and categorize different types of organizational work activities, projects and cost centers across the company. You gain better visibility of all activities and work performed for different capital vs operating expenses. 

When time spent on projects is categorized accordingly, categories of expenditures can be used to differentiate capitalized vs operating expenses, particularly those subject to depreciation and amortization. Tracking employee time means tracking efforts and categories of expenses. Accurate time reports, showing what time was spent on, will help with claiming R&D tax credits or R&D grants on capital expenditure. 

For time tracking to benefit CAPEX and OPEX, companies need a time tracking solution that encourages employees to track time frequently — preferably every day, for more accurate reports that you can trust. 

The importance of tracking CAPEX and OPEX accurately 

As mentioned before, accurate time tracking leads to accurate and trustworthy data. Businesses can easily visualize the distribution of work efforts across the company in any way needed when time tracking is implemented. 

Let's take agile software development as an example. Development costs are typically capitalized as it eventually becomes an asset. But unlike waterfall development or milestone tracking work, software development does not follow linear processes and can be hard to measure in time or monetary value. Without tracking CAPEX accurately, businesses might expense all development efforts as post-implementation or OPEX. Thus, making development costs appear very expensive to the company and its investors. And might even impact future development efforts and make it look less profitable and more expensive. 

With accurate tracking of CAPEX via time tracking software, businesses take the longer-term value in consideration, also knowing what to categorize as CAPEX vs OPEX has a positive impact on tax liabilities and profitability. 

Is CAPEX Tax Deductible?

Capital expenses are not considered deductible as they are gradually deducted from your business profit over the course of several years via depreciation and amortization. For instance, a manufacturer would acquire physical assets such as machinery or a building to conduct their business but would not expense it as it would have to gradually depreciate over several years. 

However, innovations are considered long term investments as it will help increase profit over time. In order to innovate, R&D is a crucial part of the process and can be tax deductible in the form of a credit. 

The R&D tax credit is available to companies developing new or improved business components e.g. products, processes or software. 

Is OPEX Tax Deductible?

Operational expenses are entirely tax deductible in the year they are filed. As mentioned above, operating expenses are an essential cost of running a business (otherwise there would be no business). From office supplies, entertainment and insurance to advertising, they are all tax deductible. 

What Are R&D Tax Credits?

Time and money spent by companies on R&D can qualify for the R&D tax credit. Companies can use the credits to reduce their corporate tax. This may vary depending on location. 

Additionally, this could also be in the form of a grant. Applications, to both private or public funds, might be available to lower development cost or any R&D cost for companies. 

Conclusion

The bottom line is always the focus at any company - how to cost effectively deliver more value for their customers? How can they best navigate tax benefits and tax credits for different expenditures? 

Companies have different types of expenditures or at least how they are categorized. Having to determine expenditures, CAPEX vs OPEX, is all part of the bookkeeping process. CAPEX is known as capital expenditures, whereas OPEX is the operational expenditure. CAPEX occurs when companies acquire new assets or add some value to the existing assets. OPEX refers to the expenses that a company incurs to run the daily operations. A cost that is a part of running a business. 

Time tracking is about recording the amount of time spent on a task. This helps businesses manage the work efforts spent on projects and activities. Companies gain better visibility of all activities that are affecting the bottom line by distinguishing various capital vs operating expenses. 

Determining the difference between tasks that fall under capital or operational expenses will result in gaining R&D tax credits on capital expenditures. 

Time and money spent by companies on R&D can qualify for the R&D tax credit. Companies can use the credits to reduce their corporate tax. This may vary depending on location. 

For time tracking to benefit CAPEX and OPEX, companies need a time tracking solution that encourages employees to track time frequently - preferable every day, for more accurate reports that you can trust. Tempo Timesheets offers several ways to track time in Jira e.g. automatic suggestions.

With a time tracking tool like Tempo Timesheets, you can track both CAPEX and OPEX hours and report on time spent on capital vs operating expenses. 

While your team is hard at work, real-time categorized data is available right there in Tempo Timesheets. A convenient way to capture and report on all work performed in the company. You can create different accounts to track CAPEX, OPEX, billable and internal time. The accounts are linked to a Jira project that employees log their time against. Easy and convenient way to capture hours and track CAPEX and OPEX transparently. 

Add Tempo Cost Tracker to help with real-time reflection of your project’s cost by comparing CAPEX vs OPEX enabling you to see the breakdown of total time spent and total cost. 

The best part is having that data in one place where the work takes place. No spreadsheet needed to manipulate the data further to report on CAPEX and OPEX. 

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