Planning a Big Purchase for Your Contracting Business? Think About the Tax Implications

Buying a big piece of equipment is a significant investment. You may be able to deduct a portion of it on your taxes. Here’s a few tax implications you should keep in mind as you plan.

Decide on Tax Status

There are many different ways you could choose to handle a purchase. Essentially, you have to pick between:

• buying it as a part of your business
• renting it
• buying it for personal use and leasing part of it to your business

Each one has its own tax implications, which affect the way you can deduct expenses related to the cost. It also depends on the type of equipment. If you’re buying a car or a computer that you might use for personal and business purposes, it may make sense to consider whether you will have your business buy it, or you buy it personally.

Confirm Eligibility

You have a few possible benefits you can use to your advantage in your taxes, but you must make sure you are eligible for them. For example, leasing equipment often allows you to claim the rent costs as a business expense. Deduction and depreciation is how most businesses manage the tax laws related to the purchase of property they’ll use for the business. You may want to consult an accountant to find out the rules for the current tax year, so that you can maximize your deductions.

Consider Depreciation vs Deduction

The way that the Internal Revenue Service (IRS) handles business expenses relates to the kind of thing you are buying, and how much it costs. There are regulations on the frequency at which you can buy certain types of equipment, and how much you can claim as a deduction each tax year. When tax laws change, the amount you can take off your taxes could change, too. In some cases, you may be able to deduct the full cost of the equipment in the year that you buy it. You may also have the option to depreciate the expense over time, so that you can spread out the deduction.

Remember Business Personal Property Taxes

Taxes are levied at the state and federal levels, so you want to keep state tax laws in mind, too. For example, the state of California requires businesses to pay taxes on certain types of property they keep in the running of their business. If you own the land for your business, you probably expect to pay taxes on it every year. Other big purchases you make could also be subject to taxation, although there are a few exemptions. If the total of your business’s personal property is more than $100,000, you’ll need to file a Business Property Statement.

Determine Return on Investment

The deductions you could make on a large expense may make the difference in the kind of equipment you buy or lease. Doing these calculations before you make the purchase can help you plan out the right path for you. If you need a big deduction this year, it might be the right time to upgrade. In some instances, waiting until a new year may work better.

Preparing to make purchases to run your business requires a lot of thinking about taxes. The more you can do now, the easier it will be later. To get started building your career as a contractor, contact CSLS today!