Should You Be Looking For Tax Write-Offs in Your Construction Business?

As we get toward the end of another year, you’ll undoubtedly receive marketing proposals and sales pitches that advise you to “take advantage of tax write-offs” before it’s too late. But, is spending more money on your company at the end of the year really a good idea?

The first step to finding the question is understanding the way business taxes actually work. Generally speaking, you pay a percentage of your earnings to the government only on your real profits. So, business expenses (like payroll, new equipment, etc.) can often be “written off,” meaning that you don’t have to pay taxes on the amount you spend to keep your company running.

And so, if you had a very profitable year and have a big need for some new piece of equipment, it can make a bit of sense to spend money and take advantage of the tax deduction. However, there are a few things to keep in mind:

Can you really afford the item? Just because something’s a tax deduction doesn’t mean it’s free. In other words, you’re still taking the money out of your business (and ultimately, your own checking account). The amount of taxes you would have paid on those earnings is less than the amount you have, so remember that whatever you buy is still costing you, regardless of whether it’s a tax write-off or not.

Is it a good investment? As we’ve pointed out before, there’s a big difference between an expense and a good investment – one costs you money, while the other helps you earn it back later. There is never a good time to simply spend money without thought to the return on investment you get later, regardless of the tax implications.

Is it worth lowering your profits? Business owners generally don’t mind lowering profits because of the tax implications, but lowering your profits too much could make your company seem less secure to banks, investors, and partners. So, consider the bottom-line picture before making any decisions.

If you really want to consider taxable expenses for your business at the end of the year, do it like the professionals do: Consider the costs and advantages of the purchase, and then speak to a qualified tax professional before making a final decision. They’ll be able to tell you whether the purchase makes sense, if it’s fully deductible or not, and whether making a big purchase is likely to cause any other problems in the future.