There are important tax benefits you can only gain by acting before December runs out. Preparing for taxes at the end of the year also puts you ahead of the game, eliminating the last-minute scramble to decipher receipts and new forms, so you can be calm and collected when tax season actually hits.
Perhaps the most important tax benefit small businesses should be aware of is that purchases like IT hardware or computer software that is purchased off the shelf are tax-deductible. Such capital purchases, however, must be dealt with before the new year, or they can no longer be used on your tax return. New special provisions dictate the cost of such equipment must be deducted within the year they were put into service, so you can’t afford to wait until the fiscal year ends and miss the narrow window for this tax benefit opportunity.
Small businesses should also be aware that many tax benefits are dependent on whether your activities are profitable or not. This is because the amount you can deduct for technological purchases changes according to your business’ total taxable income.
Be sure to reference Section 179 rules if you are showing a profit and Section 168 rules if you are in the red. You may even choose to consider if it is in your business’ best interest to be profitable at all, and adjust your inner workings to reflect your best tax advantage.
When making deductions for tech hardware and software purchased this year, make sure your record keeping is first rate. Keep all paper¬work that identifies the equipment, receipt for purchase, and anything that can point to when you actually put the equipment into service.
If necessary, you can then provide copies of that paperwork to the tax agency in the event that there is a question about your deduction. Before filing, if there is any doubt about whether a particular purchase is eligible for a tax deduction, consult with your tax adviser to be sure the necessary points have been met.