If you are a business owner, the IRS takes a good size chunk of your profits. Whether you are taxed at the corporate level or taxed at the personal income level, end of year buying can put cash back in your pocket right now.
“What!” you say…. “How does purchasing equipment now put cash back in my pocket”? Here is how…. Let’s say that you were planning on purchasing new equipment in the next few months. Let’s say it is a brand new Eclipse Extractor ($2750). Let’s say you are projected to make a $100,000 profit at the end of 2012. If you purchase the Eclipse in February next year (2013), the expense goes in 2013, so your 2012 profit shows $100,000. This means you pay taxes on $100,000 for the 2012 fiscal year. If you are in the 25% tax bracket, this means you pay $25,000 in taxes*. Now, if you would have purchased this Eclipse in December of 2012, you would expense the machine this year (2012) and show a $97,250 profit for 2012 ($100,000 – $2750 = $97,250). This means when it is time to pay taxes for 2012, you would only pay 25% of $97,250 = $24,312.50 in taxes*. Thus, you saved $687.50 ($25,000 – $24,312.50) in tax payments for the 2012 tax year. This is money you can put right back in your pocket or invest in your business. Remember, you needed the machine anyway, so why not use the 2012 tax savings before the end of the year!
* As a note, the taxes above don’t take into consideration your personal deductions and other factors. You can get the advice of a tax professional to see your actual savings.