06 Nov Advantages of Purchasing Equipment at End-of-Year
Business planning is a multifaceted task, and like so much else, it can get even more complex and confusing at the end of the year. Any company will always want to ensure they are coordinating their finances to increase efficiency and take advantage of tax breaks, but small-business owners need to rely on these strategies even more than average. One way to end 2017 on a high note is to pull the trigger on a big equipment purchase for your business that you may have been putting on the back burner all year.
What is a capital expense?
Most of the big-ticket items or major expenses for businesses are considered capital expenditures. Capital expenses add to the total bottom-line value of a business, either to acquire a new asset or to improve an existing one. Most forms of property, like real estate, equipment and vehicles, are considered working capital expenses.
A general rule of thumb for classifying expenses as capital expenses involves considering its expected lifespan. If an item should last for about a year or more, it’s probably a capital asset. For example, office furniture can be considered a capital expense because it adds value and should remain useful for more than a year. On the other hand, basic office supplies like paper or pens aren’t as long-lasting, so these are usually considered operating costs.
It’s important to understand the difference between capital expenses and business operating costs because it ties into your company’s finances for business tax planning and accounting purposes.
Section 179 deductions
One common reason for making a capital expense before the end of the year’s tax season is to take advantage of tax deductions under Section 179 of the IRS code. Section 179 allows businesses to deduct a certain amount of qualifying capital expenditures for the year in which they were purchased and put into operation. For businesses than spend less than $2 million in a year on eligible property, Section 179 allows up to $500,000 to be deducted from that company’s taxable income.
Tax laws are always complicated, so don’t hesitate to reach out to a qualified professional to ensure your business is filing for a Section 179 deduction correctly.
Additional year-end business planning
If your business doesn’t have any pressing needs for new equipment or another capital expense, take some time to organize your budget and finances into good shape heading into the new year.
• Review profit and loss statements to get an understanding of how your business fared during the year, making notes and adjustments to improve next year.
• Complete a detailed inventory report for a better sense of the capital that’s tied up in this area.
• If your business issues W-2 forms to employees, verify that all necessary benefits and expenses are accurately recorded.
The end of the year can reveal a bottleneck in your business planning that leaves you short on cash. That’s why many small businesses rely on lenders like QuickBridge to provide fast access to funds when they need to get out of a financial jam. Talk to QuickBridge to learn more and apply for financing today.