We’re counting down to the end of the year! It’s time to make those purchases that you’ve been putting off all year, but that you’ll know you’ll use in 2012, and for years to come.
Do keep in mind that what you’re doing is buying a tax deduction—and spending money just to save money on taxes is never a good idea, because you’re only saving a portion of what you spend when it comes to your taxes.
Let’s say you’re in a 30% combined tax bracket, and you buy a new computer for $1,000. You’ll only save $300, and still be out of pocket for $700.
But if you are going to buy it anyway, it’s better to do it now before the end of the year. Buy the equipment and supplies now that you’re going to use in January, and possibly even February.
Please note that this advice does not apply to businesses that keep inventory—we are not talking about companies that buy items, supplies or raw materials and manufacture them into a saleable product or create inventory.
This will work for small businesses that don’t have inventory and are on a cash basis. It helps the business because in essence you can deduct the items when you pay for them. If you pay for things in December—even six cases of paper—because you know you’re going to use them in January, you’re accelerating that deduction into 2011.
You shouldn’t be buying things that you’re not going to use, or inessential items, like calculators, or things you’re going to buy just to have a new one. Some good examples of items to buy now are:
- Computers and new technology
- Consumables (paper, printer cartridges, stationery, etc.)
- Promotional items
- Office furniture
- Equipment repairs (including computers)
- Telephone systems
- Certain vehicles
With new technology purchases, we recommend using an IT company such as Green Room Consulting to help advise you on what to buy and get it installed without the hassle of doing it yourself. David Pauls, owner of Green Room Consulting, can have your new system up and running with absolutely no interruption to your staff or production levels.
It is important to note that with equipment purchases, you need to make sure that they are installed by the end of the year. If you are a printer, and you buy a new Heidelberg press, you must have it installed, up and running by December 31, 2011.
Remember: Credit card expenses are deductible when charged, not paid. Get 30 days (or more!) of floated cash by purchasing business items on your credit card to have them deducted for 2011, but you won’t actually pay for them until your bill arrives in January…or even February, depending on the cut-off date. Now that can help with holiday budgeting!
If you have further questions about purchases you were tempted to make before the end of the year, but aren’t sure if they will be deductible, please call Simons Accountancy at (714) 637-4552. We’ll help answer any questions you have—and maybe a few you didn’t know to ask!