At the end of every year, a commonly asked question that we get here at Jenkins CPA is about end of year business expenses. People ask, “What do I need to do to make sure I get the best credits at the right time? Should I buy something since it’s the end of the year?”
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At Jenkins CPA, our goal is to provide you with the best information so that you will be completely confident in making the best decisions for your life and your business. Making sure you know the answer to this tricky question is important to us.
To answer this question, let’s consider the tractor theory.
At the end of the year, a farmer comes into Jenkins and asks, “Should I buy a tractor so that I don’t have to pay taxes to Uncle Sam?”
We will ask the farmer some questions:
“Do you already have a tractor?”
“Yes I have 4 tractors.”
“How many people do you have that can drive those tractors at the same time?”
“Well I have two people.”
“Do the tractors do different things?”
“No they’re just tractors.”
“Then why do you need another tractor?”
If the farmer only wants to buy the tractor so that he doesn’t have to pay as much in taxes, that is not a good enough reason to buy it.
We offer you that same advice. If you can’t use whatever you are considering buying or if you don’t truly need it, then don’t spend your money on it.
Consider this: If you spend $10,000 on a tractor or a computer or a car, you are only going to save $5000 and that’s an inflated number! And even then, you’ve still spent $5000 dollars. Since you don’t really need that car or that tractor, you could still have $10,000 dollars in your pocket and you wouldn’t have the tractor sitting in the field not even being used.
The question when it comes to taxes is not, “Should I buy something to save taxes?” Instead ask yourself, “Do I want it for the reduced cost or do I need this tractor for $5000 (because in essence that’s what it’s going to end up costing you)?” Do you really need it?
Let’s pretend that you have decided that you do need that asset so now the question is: when should you buy it?
Should you buy it before December 31st because you had a financially successful year and want to take the expense while you’re in a higher bracket? Or should you wait until January 1st because you suspect your income will go up in 2018?
In order to make that decision, you need to calculate how much it will cost you this year and compare that with how much it will cost you next year.
While taxes can be an influencing factor in your decision to buy something, it should never be the only reason that you decide to invest in a major business asset. There are so many factors that play into the decision on whether to buy a big business expense. Here at Jenkins CPA we advise you to consider each of those factors.
We are here to help you make the best decision for your business.
Do you have a specific business expense question? Give us a call (417) 725-3924 and we’re happy to help!
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