Tax Deductions - Family Woodworking

Pete my advice to you would be to check with a local tax accountant. Reason being the USA has a great many incentives in the area of capital purchases which would permit you to write off capital equipment fast depending on the category of equipment. Knowing you in the laser business computers fall into this category of capital equipment.

My other overiding advice is related to what i see most small businesses do which i think is fundamentally a weakness. Note i am not at all implying that you are engaging in this practice.
The practice is that of running their business and making business decisions primarily to avoid taxes.

Tax planning in a business is a very neccessary activity but it should not be the strategic driver to the business core.

For example some will buy a new machine for the tax break in the write offs of amortization when the productivity gains are not there or the work demands to fully efficiently utilize the machine are not there. This only shows poor judgement and is going to cost that small business owner in other areas. But in their minds they percieve to have invested in an asset that in their minds again can be liquidated in the event of troubled times. Yet many small businesses find it very hard in troubled times to sell their machinery for anything resembling what its worth in actual fact.

An area which i do not think i hear enough of from woodworkers is the aspect of raw material management in a business.

Raw material should be bought and booked into inventory. Sure it brings about the issue of inventory control. Some would see this as a nusance but if you gonna play in the business field do so with a full deck of cards is what i say. Why play a game of cards with only say 40 cards in the deck when there are 52 in a full deck.

When you manage your raw material inventory one of the aspects that can be done to avoid tax is to make a monthly provision (tucking away profit and keeping it from the bottom line) and then write off obsolete or damaged inventory against this provision at the end of the year. This way your "losses" in the form of damaged or obsolete inventory can be used to reduce your tax bill rather than be for your businesses account or be built into what you charge the customer causing you to be putting yourself out of the market. Again please i am not implying you do or dont do any good or bad practices i just wanted to throw out 5 cents while opportunity presents itself to have guys examine some of these issues in their small businesses and your question or points raised were the opener.

This aspect of "business finance management" gets one into dealing with the balance sheet something way way way too few small businesses do but in essence that is the area where the fundamentals of the business exist not just the P&L most are concerned with.

The other aspect that ties in with this is understanding the difference between profits that are taxable and the cashflow within the business. Profit does not equal cash. !!!!

Source: http://familywoodworking.org/forums/showthread.php?27943-Tax-Deductions

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