If you are looking to buy new cleaning equipment for your business sometime within the next 4 months or so, it is suggested that you actually make the purchase before the year ends. This little trick can help you keep more dollars in your pocket now vs. later.
Here is an example of how a tax write off now can help you versus waiting until later:
Scenario 1: Your business makes $75,000 profit at the end of 2011. Now, in March of 2012 you purchase $3500 in cleaning equipment. In this scenario, you pay taxes on the profit you made in 2011 ($75,000). Most small businesses are sole proprietorships, partnerships, S-Corps, or LLC’s. In this scenario, your final taxes are due on April 15, 2012 for the 2011 tax year (because they are rolled up into your personal taxes). Notice, you paid the $3500 for new equipment before your final taxes where due for 2011. However, you didn’t get to enjoy the deduction for the 2011 tax year, because you purchased in 2012.
Scenario 2: You make the same profit as Scenario 1 above, but now you purchase the $3500 equipment in December 2011. So, your end of year profit now shows $71,500 ($75,000 – $3500). Now, you only pay taxes on $71,500 due by April 15, 2012. If you are in the 25% tax bracket, you just paid $875.00 ($3500 x 0.25) less in taxes for the 2011 tax year. By the time April 15th rolled around, you have $875.00 more money in your hand than you did in Scenario 1 above.
It is true that you will eventually get the write off of the $3500 equipment in Scenario 1 above in 2013 when you are filing for 2012 tax year, but you would need to wait a whole year for this $875.00 in tax savings. Most people would rather get the $875.00 savings today vs. waiting for a whole year. This $875.00 tax savings could be used to grow your business now and reap rewards far greater than $875.00 in one year’s time.
Ultimately, you don’t just want to spend money, if you don’t need to spend it. However, if you are looking to diversify your business or get new equipment sometime in the next few months, you may want to think about doing it in December!