Don't Spend Money Needlessly
As I've discussed on several occasions, prepaying for some kinds of operating and other deductible expenses before midnight tomorrow will allow you to deduct them a year earlier than otherwise. There are some kinds of expenditures for which that strategy doesn't work.

Inventory - Stocking up on items that are going to be resold does absolutely nothing for tax savings. Whether you use the Cash or Accrual method of accounting, the cost of unsold inventory has to be carried over to the next year's tax return.

Equipment - As indicated by the dozens of postings I have made on the issue of the newly expanded Section 179 deduction, there is a lot of interest in this; especially in regard to vehicles weighing more than 6,000 pounds. One of the big misunderstandings I have been noticing is that people think they can just send in a check for some new equipment and claim the deduction on their 2003 tax return, even though it won't be received until next year. That is not correct. You need to be careful here. You can only claim the Section 179 expensing election for equipment that has been received and actually placed into service by December 31, 2003. It's not good enough just to prepay for new equipment. Anything that doesn't arrive until 2004 can't be deducted until that year's tax return.

I have seen many people make these mistakes over the years by spending all of their money on inventory and future deliveries of equipment in the final weeks of December. It's one of the unpleasant tasks of this job to have to break the news that they can't deduct those expenditures, They then have to try to sell the inventory quickly enough to come up with the money to pay their taxes by April 15.

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/30/2003 06:22:00 PM Send this post: