Over the past 20 years I have been asked many times what things can I write off? In fact, in an earlier blog I have addressed the question of what a write off is for business. However, in the past several years in my business they have certainly become something I have considered much more carefully. As my company has moved from infant stage in to adolescence I have found that being very deliberate about what and when I am taking write offs is important.
In recent months, I have sought financing for large projects. With my personal finances, somewhat in order it seems like the perfect time to expand my company to the next phase in its growth. In working through the processes of securing a loan I have found with my company it can be very difficult. I have no major assets outside of office furnishings and computers, I don’t carry large amounts of cash, because everything I make is reinvested in the company to this point. Overall, I found myself kind of stuck. After about 9 years in business I found myself reevaluating everything I was doing and continue with the evaluation today.
To assist in the asset department, I have invested in some cash value life insurance, I was also fortunate enough to find some short-term funding for my big project. Each day I work toward strengthening my company to take that short-term funding and make it long term financing. I want my company to look as strong as I feel it can and it is both on and off paper. Someday should I retire, leave it to an heir or sell the company I want it to be worth what I have put into it and more. Here are some examples of what I have been able to do to strengthen my company. They may not apply across the board but merely may inspire your thought process to do the same.
As many of you know I am working toward my Master degree in Taxation. As a part of the program my credits count toward my continuing education. Could this be a business write off in this case? Sure, it can, or I can take the life time learning credit on my personal taxes. Last year I made the decision to take the credit on my personal taxes though it meant paying out a little more in taxes? Why? It made my bottom line that much stronger. Another example I often use is my vehicle. Most of you have seen my little silver car running around town. When I purchased that car, I believe I paid about $11,000 for it. It takes roughly $4,000 a year to maintain. So, quick rough math says the car gives me $6250 per year in write off if I use actual expenses. However, I put roughly 30k per year on my car in miles. At a mere $0.50 per mile that would be a $15,000 write off per year. I choose the $6250, again it is about making my business look strong.
Yes, the tax laws absolutely allow accelerated and bonus depreciation for certain assets, but is that always the best move? Maybe or maybe not it depends on the needs of your company and where you are going. Keep in mind that a purchase only eliminates a fraction of your tax. In many cases that 10,000 purchase only eliminates $2,500 in taxes, then you are paying out $10,000 to save $2,500? If the 10,000 spent was a need (or a big want) perhaps it is okay, but the thought process is what we as business owners need to be conscious of during the process.
Now with those two examples I cannot say don’t write off expenses that are ordinary and necessary for your business to function. As taxpayers, we are required to report all income and expenses. However, I am saying sometimes we have choices and looking at our businesses as the investment they are supposed to be should lead us to making well planned choices.