Business tax tips: When to buy new equipment

Business tax tips: When to buy new equipment

When the old financial year ends and a new financial year start in April, there are many things that come up in the minds of business owners. Usually small business owners that are this the right time to buy new assets or equipments by either replacing or buying new ones.

These questions regarding equipment purchase usually come in the mind during the Federal budget in May. In the budget incentives for the next financial year are declared. For the year 2012, it was announced that an instant write-off would be given to all the businesses that purchase assets up to $6500 per asset.

The main objective of government coming up with these incentive schemes is to increase the rate of spending. But before buying assets it is very important to look at our personal situation, do we have enough money to buy equipments and if we buy now would it have any future effects on our business.

If an individual has money, then in that case spending $6500 and then getting tax subtraction on $6500 in the same year is a boost up for the business, but spending it just for getting tax deduction is not the right decision.

Before you buy any equipment do check that your regular earning allows you to do so, and it is also important to know that if you spend would you be able to cope up with the other debts.

But if you have cash available as well as have plans to expand and develop your business then this is the right time to make the full use of this incentive and get instant tax write-off.

If you have old equipments & tools and feel that it is the perfect time to buy equipments of the latest technology, along with that having cash then it is the right time to buy them and take the full benefit of the tax deduction. Tax deduction helps you save a total of about $1950 in tax. (30%, which is to be paid on purchase of assets).

If there is a case that you have a business in which you are not in need of any equipment, but want to make the full use of the incentive, along with that also have cash to spend then I would suggest it is the right time for you to purchase them and get a reduction in the tax bill. But if an individual is buying something just to get tax reduction and does want to save any tax as well as does have any extra cash to spend then I would say that it is a bad idea.

If an individual wants to purchase new equipments then he has to decide whether he wants instant write-off on the full cost or wants to extend the reduction in tax over the years and for small businesses I would suggest that you can write it off together immediately rather than deducting it over a period. Rather than thinking anything it’s better to consult your accountant who will explain you about the current situation of your company and tell you whether you have enough money in spare to buy equipments.

Most of the financial planners also recommend that business owners especially the starters should not buy equipments just for tax deduction as it is not an ideal option for the future business plans. Under section 179, an individual can currently subtract up to a yearly total of the cost of the assets we purchase in that particular year. But there are some assets, which do not come under section 179, they are:

  • Real Estate.
  • Stock of something bought for resale.
  • Property including land, asset etc. which is brought from a relative.

But for the year 2014, the threshold limit under the section 179 has been reduced to $25000 the original limit and the main reason it was adjusted was for inflation. There has been a great decrease in the limit since the past few years, at some time the limit was about $500000 during 2010 to 2013. The main reason of its increase was to help out small business holders in a pressurized economy, and there also plans of it increasing the limits again, so do keep you updates to enjoy the benefits.

The bonus given to the entrepreneurs in the first year (2012-2013) is not available for 2014. This extraordinary incentive allowed reducing an extra 50% of the new eligible property purchased during that particular year. This subtraction was an extra incentive included in the section 179 of the Internal Revenue Code and gave small business holders an access to extra tax savings.

Along with these tips regarding tax savings when buying new equipments it is also important to know about some other tax deductions, they are as follows:

  • in subtracting expenses to start up or expanding your business and failing to subtract these expenses in the first year is a very big mistake.
  • it is also very important for an individual to have an understanding of his company’s financial condition, which is a part of the year end tax policy. Along with this always make sure that the account books are perfect and updated. Also spend some time with an accountant and take all his year-end advices for saving taxes.
  • Start buying assets for your business, which will be required in the future to increase tax reduction for that particular year.
  • do pay all the bills before the New Year starts; the rent, insurance etc.
  • do even check the stock of goods, which is damaged or has some issues. A decrease in the value of the stock of the goods can provide extra reduction in taxes.

So in the end, if you have cash and want to replace the old equipments with the new one, then this is the right time to purchase it and get a tax reduction of $6500. But before you plan to take any decision then do consult professional advice.