Every fall someone tells me they're going to buy a truck "for the write-off." Sometimes that's a smart move. Sometimes it's an expensive way to save on taxes.
Here's the part that gets lost: a deduction lowers your taxable income. It doesn't refund the price.
Hypothetical: you buy a $50,000 piece of equipment, and your combined tax rate on that income is 30%. If you can deduct the whole thing this year, that's roughly $15,000 less tax. You still spent $50,000, so you're out about $35,000 in cash.
Questions I'd ask before a year-end purchase:
Would I buy this if there were no deduction? If yes, timing it for this year may make sense. If no, the tax savings alone probably won't justify it.
Can my cash handle it? Check your cash flow forecast for the next few months, including winter if your work slows down.
Will it be in service by Dec. 31? The IRS says property is placed in service when it's ready and available for its specific use. Equipment that's ordered but not delivered and ready by year-end generally doesn't count for this year.
What does my tax preparer say? How much you can deduct and when depends on the asset, how you use it, and your situation. Ask before you buy, not in March.
Good year-end planning is about the whole picture: taxes, cash, and whether the purchase actually helps the business.
If you'd like to run the numbers on a big purchase, send me a message through the Contact page.
— Rachel, Two Miles LLC