As year-end approaches, many firms evaluate their financial health and determine whether they can afford new equipment.

One of the biggest breaks in the 2003 federal tax law is increased depreciation for business owners. Under Section 178, law firms can immediately write off a maximum $100,000 of equipment purchased by year’s end instead of depreciating it over several years. The maximum write-off last year was $25,000. The new law also allows a 50 percent bonus depreciation. For example, if a firm spends $150,000 on new equipment this year, it can write off the first $100,000 and 50 percent of the remainder. It can depreciate that $25,000 over five years, including $5,000 in depreciation the first year. That’s a total $130,000 in tax breaks in the first year. Firms in the 35 percent tax bracket can save $45,000 in taxes. To take advantage of these new benefits, equipment must be purchased and in use before Dec. 31.

Even if you can’t afford $100,000 of new equipment, you may be due for upgrading or replacing existing computers, copiers or printers or adding a scanner. Here are some guidelines for upgrading technology infrastructure.

Lawyers often must replace their computers to accommodate new versions of software that won’t run on older computers. Thanks to Microsoft and its three year obsolescence policy, every software vendor, no matter how well intentioned, must update its software and push their clients off older versions to limit their support costs and ensure there won’t be corrupt data or problems running older versions on the newer operating systems. This has been especially noticeable with the release of Windows XP, which changed just enough files to cause huge problems running older timekeeping and billing, and case management programs.

When faced with the expense of replacing functioning computers, my clients constantly ask whether they can spend less by upgrading existing computers. Unfortunately, about 90 percent of the time, the answer is no. For example, suppose the firm has computers five years old or more running Windows 98 (not even the second edition of Windows 98). Their billing program manufacturer requires at least Windows 98’s second edition and more memory than their computer offers.

Is it worth upgrading that computer to Windows 2000 or Windows XP and adding more RAM memory or does it make more sense to get a new computer? The Windows upgrade costs at least $150, additional memory — depending on how much additional RAM is needed — could cost between $50 and $200. Add to that either the cost of a vendor’s installation or time lost on billable work by an in-house installation. When all is said and done, it’s still a five year old computer with a slow processor, small hard drive, limited life span and at least a $500 bill. In contrast, especially if there’s already a decent monitor, the cost of a decently configured brand new desktop is between $500 and $1,000.

So many options!

Selecting specific configurations for computers — whether a desktop, server or laptop — can be tricky. Leading hardware vendors like Dell, IBM and Hewlett Packard/Compaq are constantly changing the options. For example, last week Dell offered either double memory or a larger hard drive with no additional charge. Next week, it might offer free shipping, a free printer or a discount on a fancier monitor.

Once you’ve opted for new computers, you must decide whether to buy a desktop or laptop. Desktops are less expensive and come in either large towers or very small cases. Generally, because they don’t require smaller parts, desktops cost less than laptops. Additional components can be purchased from a wide variety of sources and aren’t limited to the original manufacturer’s products.

Laptops have evolved into three styles. Ultra lights are designed for people who travel and want the full functions and power of a laptop. These notebooks are available with external floppy, CD or DVD drives. Second are the largest laptops being marketed as desktop replacements. These are heavier, have faster processors, larger hard drives, bigger screens and all the extra components like CD-ROM and DVD drives built in. The final category is the newest — tablet PCs, which can be used like a traditional laptop but come with a pivoting screen that can hook on top of the keyboard so a special stylus can write on the screen and translate that into text. The tablets require the Microsoft XP Tablet operating system. Unless you’re prepared to spend a lot more money to duplicate the keyboard, mouse and monitor for your in office work, you should carefully consider your options.

Once you decide on the style of computer, there are different processor speeds, memory options, monitors and other components to consider. Since this is like aiming at a moving target, just aim for the sweet spot — like on a tennis racket, the middle — not last year’s models being sold at give away prices and not the brand new ones at premium prices.

How do you determine the sweet spot? Look at the options on each side of your initial configuration. Let’s use the processor speed as an example. When I was configuring a Dell workstation recently, the preset option was for an Intel Pentium 4 Processor running at 2.6 GHz. If you select a slower processor or even a Celeron chip, the price drops anywhere from $100 to $350. Similarly, if you increase the processor speed to the maximum available (3.2 GHz as of this writing), the unit’s cost increases by $50 to $150. In this case, $50 more gets you a 3.0 GHz while it would cost $150 to bump up to the maximum, a 3.2 GHz processor. This would make the optimal selection the 3.0 GHz since it’s a smaller incremental cost for a larger increase in performance.

Of course, with the price of work stations today, there’s another approach. The additional $150 is easy to amortize over the life of a typical computer. You might consider that upgrading to the fastest processor with more memory will mean faster searching, printing and accessing information every day.

Finally, the other approach is to buy the bare minimum configuration with the expectation of keeping the computer only a few years. The fallacy here is that the computers tend to stay around longer than the purchaser intends.

Components

What components should you consider and which are worth getting in the more powerful or larger options? The main components of a typical computer, whether desktop, laptop or servers, are: the processor (also known as the CPU or central processing unit); RAM memory, measured in megabytes (MB); hard drive, now measured in gigabytes (GB); along with the keyboard, mouse and monitor. A basic sound system is more than sufficient for a typical office. Most desktop and server computers still come with a floppy drive and offer a range of options for loading programs through CDs. These range from high speed CD readers to CD writers that can be used to copy files or information to CD-ROM disks (the CD-RW variety) to DVD drives (which can read CDs or play movies) to CD-DVD writers (which, while there is not a clear standard yet, can be used to read and write CDs or DVDs). DVDs hold substantially more data than CDs although they’re still not as efficient to back up entire computers since they don’t approach the size of the super large hard drives now standard on new desktops, laptops and servers.

When comparing components, some are worth the more expensive option while others are less critical. It is very costly and impractical to upgrade the processor, which controls the speed at which the computer manages commands. Consequently, it makes sense to get the fastest processor you can afford. If you’re getting a server, you may even want to consider a dual processor computer since it will handle user requests more quickly. RAM memory, which is easy and inexpensive to upgrade, is easier to include as part of an initial purchase. RAM chips are relatively cheap. For example, upgrading from 128 to 512 MB costs about $120.

Depending on the manufacturer, desktop and laptop computers come standard with 20 or 40 GB hard drives. The latter should provide enough storage for the life of the computer, especially if it’s used as a workstation on a network where the firm’s data is stored on a shared server drive.

As the price of computers has dropped, the percent of the cost of monitors has grown along with their size and options. Many firms keep existing monitors when upgrading computers. However, depending on their specifications, you could be hampering your staff’s productivity. Today’s software is being written by vendors with the expectation that customers are using larger monitors with higher resolution (often 600 x 800 pixels). Running these programs on smaller monitors means wasting time scrolling to see entire screens of data or instructions.

There are two different quality monitors. Look for terms like “ultra sharp” and watch price differences between product lines to ensure you’re getting the higher quality flatpanel monitor. You can immediately see the difference if you place the two designs side by side. The new monitors are so much easier on the eyes. And getting a new one when purchasing a computer will prevent potential problems with incompatibilities between older video cards and newer monitors. Similarly, the internal components such as the floppy drive, CD drive, tape backup unit or other add-ons are intended to work with a new computer and are less problematic than adding them later to an existing system.

Network

If your firm has computers that are not connected to each other or connected through a peer to peer network, you could upgrade to a dedicated server based network. This is a higher quality computer designed specifically as a server. It has more reliable components and some redundant parts such as duplicate hard drives so if one crashes, you can continue working on the mirrored drive. Of course, this also translates into a bigger expense but if you plan to put your firm’s data and applications on this server, you want the most reliable computer you can afford.

Lawyers too often make a huge investment in computers and software, but hold off staying current only to be confronted later with another huge investment. Some of my clients regularly upgrade their hardware and software, and some still use programs and equipment more than five years old. Had it not been for the fears of Year 2000 incompatibility, there would be many more firms with older systems. In fact, many of those firms are now due for upgrades since the vendors of their primary software programs are compelling them to buy the latest version. The main reason the legal software vendors are forced to do this is that the changes Microsoft made from Windows 95 or 98 to Windows XP has made the legal applications written for earlier Windows versions run unreliably on newer computers.

Firms that make regular incremental upgrades, over time actually spend less on technology than those that “get their money’s worth” by waiting too long. The fact is firms that regularly upgrade have to learn fewer changes since software vendors tend to make incremental improvements between versions. Even the cost of upgrading software is usually less when moving from one version to the next instead of jumping up from several versions back.

Whew!! There’s a lot to consider when shopping for new computers!

Carol L. Schlein is president of Law Office Systems in Montclair, a training and consulting firm specializing in law firm automation. Previous columns are on her company website, losinc.com. For information about her quarterly meetings for Time Matters users, check the website or e-mail info@losinc.com. Schlein formerly chaired the Computer and Technology Division of the ABA Law Practice Management Section.

Questions for Carol L. Schlein on law office technology may be e-mailed to New Jersey Lawyer at news@njlnews.com or faxed to (732) 650-7010.