This is the time of year when businesses start thinking about how to bring down their tax bill. That’s why if you go to different business sites online, you’ll see a lot of content about end of year tax planning.
One piece of advice they often mention is to make big purchases for your business in December in order to lower your tax bill for the current year. Of course, this really only works with investments you actually need to make, otherwise, you’re just wasting money.
Secondly, this also only works if you expect you’ll be making the same amount of money in the coming year. If you’re going to be earning more, then it may increase your tax bracket and you’ll want to save those deductions.
That being said, here are some investments that some small business owners may want to make now – especially if they’ve already been thinking about it.
Upgrading back-end systems.
A few years ago, I made some major investments in my business. One of those investments was upgrading my back-end systems. At the time, I decided to go with an all-in-one system that handles e-commerce, affiliate management, client management and email marketing.
The reason I did this is that I knew where my business was headed and I wanted to be prepared. I didn’t want to find myself needing this system a couple of years down the road and then needing to go through the hassle of upgrading.
It cost me an arm and a leg to do this. And what I didn’t realize was that I could have started the process a couple of months earlier (in December) to offset my tax bill from the previous year. Instead, I got hit with this expense AND a tax bill at the same time. Let’s just say it was a rough quarter.
All of this to say that if you are thinking about upgrading your backend systems in 2018, and you know it’s going to cost you a lot of money, to start the process now.
If you have a rebrand on the brain, consider making some of the investments now. Depending on the size of the rebrand, you may need designers, developers, and team members to help you.
None of these things are cheap. Therefore, if you can start making some of those investments now, do it. For example, maybe you can create a payment plan with your designer. If you begin paying them now, you can deduct some of this year and the rest the following year.
Contractors can also cost a lot of money, so if you were planning on hiring people in January, maybe you should start now. From a tax planning standpoint, you can deduct whatever you pay now. From a hiring standpoint, you can onboard them in December so they’re ready to go by January.
If you need to upgrade any equipment – like a laptop – now may be the time to do it. First, you can probably find a better deal since it’s holiday season. Second, that will be a nice deduction from your taxes.
Some small business owners could benefit from end of year tax planning by making large investments. As always, make sure to discuss your tax planning strategy with your accountant first.