It’s nearing the end of the year and for many of us, that means the fiscal year as well! All small business owners should check their profit and loss regularly, and hopefully you’ve had a chance to take a look at your profit and loss and see what your bottom line is.
If you have a positive bottom line, then, first of all, congratulations, pat yourself on the back because that means that you have a viable business. The problem with having a positive bottom line is that you have to take into consideration the fact that you’re going to pay taxes. And again, I’m going to say congratulations about that, because paying taxes means that you have a viable business. It’s a vicious circle!
While it’s great to pay taxes, let’s discuss how can we take that bottom line and make it a little bit lower so that the amount of income tax we’re going to pay will be decreased.
WHAT YOU WANT TO THINK ABOUT IS:
things that you need or that you want, or that you have to have for next year. Keep in mind that I’m not encouraging you to go out and buy a whole bunch of stuff just so that you’re not going to pay taxes, that’s just a waste of money, but buying things that you are going to use!
I really want you to think about what you want or need or what do you have to have for your business, let’s say for the first half of next fiscal year. What are the things that, if you bought them now, you would definitely use?
The benefit of buying something right now as opposed to waiting for the new year is twofold.
- First of all, we have a benefit to our income taxes. Every expense that we put through the business lowers our bottom line, which means less income taxes to pay for the fiscal year.
- And, secondly, the other benefit is that if you’re buying from a Canadian business and you have an HST number, then you can claim that HST back in this fiscal year as opposed to waiting until the next year.
SO THOSE ARE THE TWO BENEFITS OF BUYING SOMETHING NOW
But again, before you hit the buy button, make sure that it’s something that you need or that you have to have and that you’re definitely going to use come the new year.
There are a couple of different categories of purchases that have different effects on our bottom line.
I had somebody recently ask me if they should buy a big piece of equipment in order to save on taxes, and the answer to that was ‘no’. The big piece of equipment they were asking about would have been classified as an asset. Assets are these bigger purchases, think big pieces of equipment, a property, a car, fixing up your office with a big construction project, those kinds of things. These types of expenses – assets – show up on your balance sheet and depreciate over time. When you spend a large amount of money on a big purchase like that, you end up with a small depreciation that happens every year over a period of time until that item or, that construction project loses its complete value.
So if you purchase new windows for the studio that you own, then those windows are not all going to be one expense for this year. They’re going to be something that depreciates over the years and it’s the same with any kind of piece of equipment or larger ticket item. They affect your bottom line, but not by the full value of the purchase in the year you purchased it.
The items that WILL lower are bottom line at year end are the smaller items that will be direct expenses against your income. But always keeping in mind, are you going to use it? Do you need it? Do you have to have it? And is it going to benefit your business? Is it going to bring you more income?
HERE IS A SHORT LIST OF THINGS THAT WILL GIVE YOU SOME IDEAS:
- subscriptions to programs that you use all year round. Canva, Adobe, Microsoft Office etc. Usually if you purchase the year all at once, you’ll save yourself money and you can buy it flat out as an expense against this year’s income.
- hardware that you might need. Something for your office, items that fall under the $500 mark. A new mouse, a new piece of video equipment, a tripod, a new keyboard, a new office chair, those kinds of things.
- software you need in order to run your business. Again, if you can purchase it all at once, you can purchase it now and then you don’t have to think about it on a monthly basis.
- Education or consulting. Are you in a coaching program? Taking a course? Usually coaches and education programs have an option to pay everything straight upfront and you can get those paid for and then claim that in this fiscal year.
- marketing or advertising. Do you need new business cards? Do you need new flyers? Are you thinking about hiring somebody to design a new advertisement or logo? Get that started and do the first payment now.
- a social media audit. There are great companies out there who will go through your social media, see what you’re doing, and give you some feedback on how you could improve your processes. This would be a great time to start that if you’re thinking about it.
- office supplies. Most of us are digital nowadays, but buying your paper, your pens, a new ink cartridge. They’re, tiny amounts, but every little piece that you buy then this year that you’re going to use in the beginning of next year will show up as an expense on your profit and loss or your income statement and benefit you in 2022 as opposed to in 2023.
- client gifts. Are you thinking about doing a holiday gift this year? Are you thinking about sending out something in the new year. Do you do regular gifting and you want to take it into the next year? What could you buy now that you could have on hand for those kinds of gifting opportunities?
- if you have a product based company, maybe you want to think about some of the inventory or the items that you might need in order to make your product. You have to be careful with this one as inventory is expensed as you sell, not when you buy so it’s not like if you buy a whole bunch of inventory that you can use that as a, as a full expense in this fiscal year.
Take a good look at your profit & loss and start thinking about what you could use as expenses to write off against your 2022 bottom line!