Forum Moderators: phranque
It always seems this time of year is either a frugal attempt at collecting next years income today, or going on some mini spending spree.
Which are you doing?
For example: Let's say you're in a 30% tax bracket - you pay $300 for every $1000 you make. You buy a laptop for $1000. You write off $1000 effectively lowering your income by $1000. This only saves you $300 in taxes and you're still out a net of $700 cash. Yeah you have a new laptop but it's now only worth half what you paid for it so if you hit hard times and had to sell it let's say you could get $500. Now you've saved $300 on tax and got $500 back on the $700 net layout and you are $200 worse off than when you started in the first place and now you're eating Mac and Cheese right out of the pot with a big wooden spoon.
wow - I'm really bored today :)
I am too so I'll respond ;)
You are correct, it does not make sense to buy things you don't need to save on taxes. But if you NEED a laptop, and you're planning on buying one soon, it makes sense to buy it in December and see the tax break reflected in 2004.
However you're assuming that all things remain the same, specifically the tax rate. In reality the tax rate is always dropping, I forget the figures but for a number of year now (even without new cuts) the rates have been dropping. So if you expense some additional items at the end of the new year you can in theory make a bigger hit on the tax bill than you would for next years taxes. It's kind of the opposite of why IRA's work well, you're betting that rates drop.
When tiered tax brackets kick in, then it gets to be a matter of "income averaging," though it has very little effect if you're always in the top bracket anyway.
In the states, we have 'Section 179' which basically lets you expense off rather than depreciate certain balance sheet items. I view it as use-it-or-lose-it, and it does keep the books much simpler rather than having depreciation schedules to maintain.
>Spending Spree or Hording Cash?
I'm on a spending spree.
Me neither....pay Uncle Sam what he is owed and smile regardless of how much it hurts to write that check :)
>Spending Spree or Hording Cash?
I'm all for hording cash, after Sam's had his slice of me of course. Spending for the sake of reducing taxes never made any sense to me, even in this low interest rate, poor performing investment market ;)
Happy New Year.....Ebenezer %%%%
(I say 'usually' because you can, to a point, pretty much define your tax year wherever you like in the UK. My father's business even does it almost one year late, meaning he pays taxes now for what he did two years ago. All legit under UK tax law, but a paperwork headache.)
The UK tax year is always April 6th to April 5th but as a business (self employed or limited company) you can choose your own accounting dates.
The UK tax year is always April 6th to April 5th but as a business (self employed or limited company) you can choose your own accounting dates.
April 6th-April 5th? Wow, there goes my tax knowledge :-) Lucky someone else checks all my figures for me! I'll never forget that now, cheers!
