What to Buy (and Not Buy) for Your Business Before Year End
As year-end gets closer, you may start hearing that it’s time to make business purchases before December 31 so you can get the tax deduction.
But spending money just to get a deduction doesn’t automatically make it a smart business decision.
Before you buy new equipment, sign up for another piece of software, or finally order that new office furniture, take a look at your numbers first. Here are a few things to consider.
Buy something your business actually needs.
If you were already planning to replace an old laptop, purchase equipment your business needs, or invest in software that will make your business more efficient, making the purchase before year-end may make sense.
The important part is that there’s a real business reason behind the purchase - not just that you heard you should spend more money before December 31.
Ask yourself: Would I still buy this if there were no tax benefit? If the answer is no, it might be worth reconsidering.
Don’t spend $1 just to save a portion of it in taxes.
This is where the idea of a “tax write-off” can get misleading. A tax deduction generally reduces the amount of income that is subject to tax. It doesn’t mean you get the entire cost of the purchase back.
If you spend $5,000 on something your business doesn’t really need just to get a deduction, you still spent $5,000.
A legitimate deduction can absolutely be valuable - but it shouldn’t be the only reason you make a purchase.
Look at your cash flow first.
Before making a large year-end purchase, think about what else that cash needs to cover.
Do you have payroll coming up? Taxes? Rent? Loan payments? Annual subscriptions or other expenses that hit at the beginning of the year?
Something can be a good investment for your business and still come at the wrong time for your cash flow.
Looking at what’s coming in and going out over the next few months can help you decide whether making the purchase now actually makes sense.
Remember that not every purchase is treated the same way
Not every business purchase is deducted the same way for tax purposes.
Some ordinary business expenses may be deductible in the year they’re incurred, while certain larger purchases may be treated differently or depreciated over time.
That’s why it’s a good idea to talk with your tax professional before making a significant purchase based on an expected tax deduction. They can help you understand how the purchase may actually affect your taxes.
Make the decision based on your business, not just the calendar.
The goal at year-end isn’t to spend as much money as possible before December 31.
It’s to make smart decisions with the money your business has.
If something will genuinely help your business and you have the cash available, year-end may be a great time to make the purchase. If you’re only buying it because you think you “need another write-off,” keeping that cash in your business may be the better choice.
And whatever you decide, make sure your legitimate business expenses are properly recorded, your receipts are organized, and larger purchases are correctly reflected in your books.
If you’re not sure where your business stands financially, start with your books. Accurate, up-to-date bookkeeping gives you a much clearer picture of what your business can actually afford.
Ready to get your books organized before year-end?
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