It's Year End, Should I Spend?
It's year end, should I spend?
It's a question that gets asked every year about this time by anyone running a business. Of course, the answer is always "sometimes." We've put together a quick guide that can help you decide what to spend before the year comes to a close.
YES — SPENDING IS JUSTIFIABLE
▻ You are planning to buy it some time soon anyway. Just make sure the spend doesn't negatively impact your cash flow.
▻ You want to take a deduction. Remember, spend must be on Expenses or Equipment.
▻ You want to accelerate expenses by deducting them now, which may save money next year.
▻ If certain tax breaks aren't extended by Congress it could be worth spending on some things this year. (For more information on tax breaks expiring at the end of 2015: From commuters to racehorse owners to rum things to know about year-end tax breaks.)
NO — HIDE THE CREDIT, KEEP THE MONEY IN YOUR POCKET
▻ You just want to throw a big holiday party or hand out bonuses, or maybe even pay off some credit. The bad news: spending this year versus next year won't lower your tax burden.
▻ You run your business on an "Accrual Basis." The rules are different, and you're required to report expenses and income in the year they happen regardless of whether you've received or spent the cash already.
▻ Your business is new. If you are just starting up, preserve cash, preserve cash, preserve cash! Don't spend unless you have to; you may need cash reserves to meet unexpected (or expected) events.
Keep in mind these are general guidelines, always ask your accountant as there may be unique circumstances in your case.
The last piece of advice to remember is kind of a repeat: don't buy things you weren't planning to buy anyway, or that in some way do not enhance your business. A tax break is great, but spending always takes money out of your pocket. So, if you don't need it, don't buy it.
Still have questions? Ask us, we'd be happy to answer them all.