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End of Year Purchases

Discussion in 'Business Operations' started by clayslandscape, Dec 6, 2012.

  1. clayslandscape

    clayslandscape LawnSite Senior Member
    Posts: 457

    My accountant and I sat down today. I had total sales of roughly 85k and after overhead is taken out, I cleared about 35k. My accountant says I need to spend quite a bit before Dec. 31.

    My question is, what do you guys spend end of the year money on typically? I don't have anything I really need besides a snow blower which I will get.

    Do you all have to show that you did not have a profit each year in order for the taxes to not eat it up?
  2. 32vld

    32vld LawnSite Gold Member
    Posts: 3,984

    After clearing $35,000 after expenses.
    Is your salary before the $35,000 or part of the $35,000.

    If your salary is out of the $35,000 I don't see you having much money left over after you support yourself.
  3. britsteroni

    britsteroni LawnSite Senior Member
    Posts: 334


    Before I give a detailed response, let me ask a few questions.

    1. Is your business set up as a sole-proprietor where you business activity flows to Schedule C of your tax return?

    2. Are you a married filing jointly taxpayer? If so, does your wife work? If so, please give the details of her income as this will have a large affect on the taxes you will pay on your profit.

    3. Of the $35,000 of net profit showing, how much do you have sitting in the bank?

    4. How much do you need for reserves to make it to next spring?

    5. What are you goals for the business in the upcoming season and into the future?

    I'll try to give a more thoughtful response after you answer these questions.
  4. hackitdown

    hackitdown LawnSite Silver Member
    Posts: 2,505

    Fully fund your IRAs. Hire your mom for a project, pay her on payroll, have her gift the money back to you later. You could buy consumables like office supplies, marketing materials, uniforms, trimmer string. Talk to a local gas station and see if you can prepay for fuel...a prepaid account, like a gift certificate. Truck tires on wheels for winter swaps. Repair or maintenance parts. Fertilizer and seed. The list is endless.

    Buy real estate.
  5. White Gardens

    White Gardens LawnSite Fanatic
    Posts: 6,776

    To me, any accountant advising you to spend money to avoid taxes is steering you in the wrong direction.

    For one, you have to have the money first to buy the equipment. If that takes away from your day to day living expenses, then what are you going to live on.

    Equipment also depreciates, you never get your money back on something that depreciates.

    If you go to sell your business or equipment, then you end up paying capitol gains tax. So avoiding taxes at point A doesn't mean you won't have to pay taxes at point B.

    Spending 20k to avoid paying 3k in taxes seems like a bad numbers evaluation. If you have 17k left over after taxes, invest it somewhere where you will make the 3k back.

    Lots of investments also give you a tax break or deduction also.

    Everyone business owner that told me I should buy equipment or spend money on stuff to avoid taxes was pretty much broke. Never could I figure that one out.

    That and the farming community I grew up in pointed it out to me. Farmers would spend 200k plus on equipment to keep from paying taxes and always complained of being broke.

  6. CLS LLC

    CLS LLC LawnSite Senior Member
    Posts: 487

    I completely agree with everything you just said, I am in a similar position as the OP but I'm just keeping the money and paying the taxes on it. The fact of the matter is the way I personally run my financials, I use the extra money at the end of fall to make it through until next spring. I plan my financials to not rely at all on snow plowing income (and it looks like, again this year, that was a very good decision.)

    One thing I did one year was effectively "sell" my personal tools to my business at the end of the year. Prior to starting this business I was an auto mechanic, so the fair market value of my tools is around $10,000. And since the tools are now used almost exclusively for business owned equipment repairs and kept at my business' shop, it seemed fair. Being a large sum, the $10,000 investment was depreciable, but I chose to take all the depreciation in that current tax year to avoid higher taxes.

    To the OP, maybe you have some things that you still "personally" own, but the business uses much more often than you do, that you can "sell" to the business to avoid some taxes. If you do this though, make sure to document what you are "selling" with pictures so you can make the argument of their value to the IRS if necessary.
    Last edited: Dec 7, 2012
  7. White Gardens

    White Gardens LawnSite Fanatic
    Posts: 6,776

    And don't forget, if you have a corporation set up, you can lease your personal equipment back to the corporation, such as vehicles.

  8. JCLawn and more

    JCLawn and more LawnSite Fanatic
    from MI
    Posts: 5,206

    i know someone who does that. All his truck say leased to ..... when he owns them. Good advice here, I wish more people understood taxes. There is no tax bracket, its like this. These are not actual number but an example, for the first 50k your taxed at 10percent, 50-100k is 20 percent 100-250k 30 percent. If you make 101k your not paying more in taxes than if you made 100k becuase your only paying more taxes on that extra 1k you made, not the whole 101k.
    Last edited: Dec 7, 2012
  9. snomaha

    snomaha LawnSite Senior Member
    from midwest
    Posts: 896

    Don't spend a dollar to save quarter - if your accountant is telling you this i think I would find another accountant.

    Your biggest key performance indicator should be "how much in taxes am I paying". If your not paying taxes you are not making money and not gaining wealth.

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