When Does a Business Purchase Actually Help Your Tax Situation?
A tax deduction can make a good business purchase more valuable. It does not turn a bad purchase into a good one.
You’ve probably heard it: “Buy it before year-end. It’s a write-off.” That advice leaves out the most important part. You still have to spend the money. And depending on what you purchase, how you use it, and when you begin using it, the tax treatment may not be as simple as “I bought it, so I deduct it.” Before you make a year-end purchase for tax reasons, here’s what I want you to think about.
A write-off is not free money
Suppose your business spends $10,000 on equipment. Even if that purchase ultimately reduces your taxes by, say, $2,500, you still spent $10,000 to save $2,500. You are still $7,500 out of pocket. Illustration only — the actual tax impact depends on your specific situation.
So the question should never be, “How much can I write off?” The better question is: “Does spending this money make sense for my business after I consider the tax benefit?”
Before you buy, run it through these 5 questions
The TTS Perspective
Don’t spend money just to make the tax bill smaller. The goal is to make smart business decisions and understand the tax consequences before you spend the money. Sometimes the right answer is yes. Sometimes the right answer is keep your money.
Before you swipe the card...
Would I buy this if there were no tax deduction?
Is it really for the business?
Can I afford it?
Does the timing work?
Have I looked at my real numbers?
Make the business decision first. Then look at the tax benefit. If you’re considering a significant year-end purchase, ask before you buy.
Truesdale Tax Solutions
Real Returns. Real People. Real Results.
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