Why Are You Buying Things for your Business?
At tax time it's reassuring to see how much you can deduct as a business expense for all of the items you purchased last year.
The more things you purchased last year, the lower your taxes will be. In fact, for every $100 you spend on items for your business, you'll be able to reduce your taxes by about 30-40% (depending on your family's overall income).
But, focusing too much on trying to lower your taxes is not always a good idea.
Your main goal should not be trying pay as little tax as possible.
Your main goal should be to set short and long-term financial priorities for your family and then take steps to meet them.
What are your financial goals for next year, for the next five years, for your retirement? What is important to you?
You want to be spending money on things that are consistent with your financial goals and your values.
Taxes are secondary.
Two Providers
I remember one provider, Lisa from Texas, who I helped many years ago when she was audited by the IRS. She was a single mother with two young children. Her gross income for her family child care business was about $12,000. One of the items she bought was a $1,200 central vacuum cleaning system.
She clearly could not afford to buy the system. Was having a clean home really so important that she needed to spend 10% of her income? I don't think so. But she hadn't thought about what was truly important to her. She hadn't tried to set any financial goals. If she had, I don't think she would have purchased it.
Another provider, Pat from Minnesota, once said to me that before she buys anything for her business she asks herself, "Will this improve my business, will it entice parents to come to my program, or will it not matter?" If it didn't matter, she wouldn't buy it. Then she told me that "mostly it doesn't matter." This thinking helps her keep expenses down.
Why are you buying things for your business?
You don't want to buy something for your business that costs $100 if you only get back $30-$40 on your taxes. If it's important to buy an item for your business, do so. But don't buy something to get a tax break!
And don't buy something unless you need it. Even better, save your money to meet specific financial goals.
So, when you get finished with your last year's tax return, it's time to look ahead and set some financial goals for next year. If you don't set goals, you are unlikely to meet them!
Tom Copeland - www.tomcopelandblog.com
Image credit: https://www.flickr.com/photos/68751915@N05/6355400713For more information, see my Family Child Care Money Management & Retirement Guide.
