Every November someone asks me the same question: “What should I buy before December 31 so I pay less tax?” Usually it is a truck. Sometimes it is a new laptop, a piece of equipment or a stack of supplies. I understand the instinct. Nobody enjoys writing a big check in April.
So here is my hot take: if the only reason you are buying something is the tax deduction, do not buy it. Not yet. Let me walk you through how I think about year-end purchases with the owners we work with, because this decision is usually less about tax and much more about cash.
1. A deduction is a discount, not a refund
When you deduct a business expense, it lowers the income your tax is calculated on. It does not hand the money back. Here is a simple illustration: if you spend $10,000 and your combined tax rate on that income happens to be 25 percent, the deduction is worth roughly $2,500 in lower tax. You are still $7,500 lighter in the bank. Your actual rate will be different, but the shape of the math is always the same.
That is why the question I ask is never “Is it deductible?” It is “Would I buy this if there were no deduction at all?” If the answer is yes, the tax benefit is a welcome bonus. If the answer is no, you are spending a full dollar to save a fraction of it.
2. Buying it is not the same as putting it to work
This one catches a lot of owners. For depreciation, the IRS says you place property in service when it is ready and available for a specific use, and depreciation begins at that point, not when you sign the order (IRS Publication 946). The Section 179 deduction is also tied to the year you place qualifying property in service (IRS Publication 946).
In plain terms, a truck ordered on December 28 that arrives and is set up on January 10 is usually a next-year story. If timing matters to your plan, confirm delivery and setup dates before you count on the deduction, and talk it through with whoever prepares your return.
3. It still has to make sense for the business
The IRS standard is simple to say: to be deductible, a business expense must be both ordinary and necessary. Ordinary means common and accepted in your field; necessary means helpful and appropriate for your business (IRS Publication 583).
And when something is used for both business and personal purposes, like a vehicle, the IRS says you divide the expenses between business and personal use (IRS Publication 583). A truck that mostly runs weekend errands does not become a full business expense because it was bought in December. I would rather you track business use honestly from day one than try to reconstruct it later.
4. Cash in January is a strategy too
The first quarter is quiet for many businesses. Sales slow down, insurance renews, annual subscriptions hit and tax payments come due. The owner who spent the cushion on December 30 is often the same owner looking for a line of credit in February.
I want you to walk into January with runway. Cash on hand gives you options: hiring when the right person shows up, negotiating with a supplier, taking on a bigger project or simply sleeping well at night. A deduction cannot do any of that for you.
5. Plan in November, not on December 31
The good year-end decisions I see are made from real numbers. That means books reconciled through October or November, a realistic projection for December and an honest conversation about what the business needs next year. Once that picture is in front of you, the purchase decision becomes easy: buy what the plan calls for, when the plan calls for it.
Panic purchases happen when the books are three months behind and the owner is guessing. Get current first. Decide second.
The three questions I ask before any December purchase
- Does the business need this to operate or grow next year?
- If timing matters, will it be ready and available for use before year-end?
- Can we afford it and still keep a healthy cash cushion for the first quarter?
Three yeses and I say go ahead. Anything less and I usually say wait, and plan it properly.
How PRC can help
At PRC Accounting & Taxation, we keep your books reconciled every month, so year-end planning starts from facts instead of guesses. Before December closes, we can give you a clear picture of profit to date, a realistic December projection and your cash position, so you can make purchase decisions calmly and on purpose.
Book a free 30-minute consultation, call (984) 379-7823 or email office@prcaccounting.com.
This article is general information, not tax advice for your specific situation.
Hafiz M. Riaz, FCCA (UK)
Founder & CEO, PRC Accounting & Taxation LLC
Sources
- IRS Publication 946, How To Depreciate Property
- IRS Publication 583, Starting a Business and Keeping Records
This article is general information, not tax or legal advice for your specific situation. Confirm dates and rules against the current IRS source before you rely on them.