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Posted In: Business Planning

How Should I Evaluate My Year-End Spend?

Your business has had a strong year, and you’ve turned a profit. The end of the year and the prospect of annual taxes are in front of you. You might be asking yourself at this point if now is the time to invest some of that profit back into your business.

When it comes to evaluating whether or not to make big year-end purchases, there are a few questions to ask yourself:

  • Will this actually benefit me?
  • What should I purchase?
  • Do I really need this?

Making a large purchase may help to bring down your tax obligation, but there are some criteria your company must meet to qualify for the benefits.

Who Does Year-End Spend Benefit?

First and foremost, year-end spending only benefits profitable companies. While it may seem like you’ve had a great year, work with your accountant to run your key financial reports and determine exactly how profitable you have been so far this year. Did you make enough to cover the cost of the purchase(s) you have in mind?

If so, spending money on certain things can help maximize your tax deductions, resulting in a lower IRS bill. If not, there’s little benefit to purchasing anything now versus waiting a few months. At that point, the decision should be based around how badly you need the thing you want to buy instead of how much purchasing it now could save you.

What Should I Buy?

Most businesses looking to make a year-end purchase will spend their budget on fixed assets. However, depending on your entity type, there may be benefits to other kinds of spending. For example, S Corps can pay out distributors with their year-end budget.

No matter what you purchase, make sure it’s something that your business needs. Buy something that you already planned to purchase—that what the only thing you’re adjusting is when you pay for it.

If you’ve been looking into upgrading your company’s furniture for a few months and know you need to make it happen soon, the end of the year may be the time to finally sign off on the purchase.

Here are a few of the most common asset purchases:

  • Land
  • Buildings
  • Computer Equipment
  • Computer Software
  • Furniture & Fixtures
  • Intangible Assets (Trademarks, copyrights, etc.)
  • Leasehold Improvements
  • Machinery
  • Vehicles

Bottom Line

Money is still money. And if you are bootstrapping your business, every dollar counts. Carefully consider how each purchase you make throughout the year will help your business grow or operate more efficiently. Make sure that you have a comfortable cash runway in case your business hits a road bump.  

Most of all, work with a trusted accountant to help you take advantage of all the deductions available to you and analyze the best time to make these kinds of purchases—whether at the end of the year or not.