Year-End Equipment Purchases — When They Save Taxes (And When They Don't!)

About this video

• Video Title: Year-End Equipment Purchases — When They Save Taxes (And When They Don't!)
• Channel: Mark J Kohler
• Speakers: Mark Kohler, Matt Sorenson
• Duration: 00:29:37

Overview

This video discusses the tax implications of purchasing business equipment at the end of the year. Mark Kohler and Matt Sorenson explain the difference between tax deductions and credits, the concept of bonus depreciation, and how to strategically utilize these for tax benefits. They emphasize making sound business decisions first and then considering tax advantages, cautioning against letting tax incentives drive unnecessary spending. The discussion also touches on the time value of money and strategic retirement contributions.

Key takeaways

• Tax Deductions vs. Tax Credits: A tax deduction reduces taxable income, while a tax credit directly reduces tax liability dollar-for-dollar. Tax credits are generally more beneficial.
• Strategic Equipment Purchases: Buying equipment solely for a tax write-off can be a trap. The decision should be driven by business need, not just tax benefits, as the purchase still costs money.
• Bonus Depreciation: This allows for 100% deduction of eligible business assets in the year of purchase, but it's crucial to consider business use percentage and basis, especially when using debt.
• Section 179 Deduction: This allows businesses to deduct the full purchase price of qualifying equipment up to a certain income limit. It can be beneficial if you want to bring your taxable income down to zero, but may not be ideal if you anticipate being in a higher tax bracket in the future.
• Time Value of Money: A deduction today is generally more valuable than a deduction in the future, assuming the same tax bracket. This principle applies to timing expenses and making investments.
• Retirement Contributions: It's advantageous to make retirement contributions (like to a Roth IRA or HSA) early in the year to allow investments more time to grow, rather than waiting until the tax deadline.
• Basis Considerations: When using debt to purchase assets, especially in S-corporations, ensure you have sufficient basis to claim the full deduction, as debt itself does not create basis in the same way as personal investment.