While it may just be the beginning of the holiday season, it’s vital for you to start doing your budgeting right now. The further ahead of the process you get, the better prepared you’ll be, and there are more benefits you can take advantage of – benefits like Section 179.
Why Should You Start Your 2020 Budgeting Right Now?
First of all, 2020 is just around the corner. Sure, it may still be December, but with all the holidays and other events coming up, the remainder of 2019 will go really fast.
While there are plenty of reasons to do anything ahead of time instead of procrastinating, in this case, there is one key reason to start your 2019 budgeting right now…
The end of the year is quickly approaching; before you know it, 2020 will be upon us.
What many small businesses don’t know is that this is the prime time to incur expenses before the end of the year. Businesses that are strategic with their finances typically benefit from minimizing taxes by lowering reportable annual profit.
If expenses are due to hit early in 2020, and your business accounts on a cash basis (as many smaller organizations do), it would benefit you greatly to incur the cost by the end of 2019 instead.
But that’s just general tax strategy – what if there were even more reasons to start your budgeting process right away?
Specifically, you should be paying attention to Section 179, which allows you to expense up to $1,000,000 of qualifying property for 2019. This is phased out dollar for dollar by the amount that the combined amount of eligible Section 179 property exceeding $2,500,000.
However, you should also note that it is subject to a business taxable income limitation. The portion of a Section 179 deduction that generates a taxable business loss is carried forward to the next tax year.
Pass-through entities are subject to this limitation but business taxable income is increased to account for salaries or guaranteed payments to partners (you will need to override business income under depreciation options and overrides).
At the individual level, W-2 income is part of the overall business taxable income calculation. Make sure that the tax software you’re using automatically counts W-2 income. See why it’s important to start thinking about your budget and taxes right now?
That’s not even the best part…
Don’t Forget About Bonus Depreciation
You can now elect out of bonus depreciation for a particular class of property (all or nothing) – for example, such as all 5-year property. Great news, right?
Well, maybe you’re still not enthusiastic about starting your budgeting process. Even with all this great information, and opportunities to save money in taxes, there’s still one main hurdle – you have to actually go through the budgeting process.
At a time when you’d rather be planning the company holiday mixer, finding the perfect presents for your family, or booking your vacation in a more tropical setting, it’s understandable that the last things you’d want to think about are taxes and spreadsheets.
We get it – this is a busy time of year both in business and in your home life, and so, budgeting in time to take advantage of key Section 179 benefits shouldn’t be quite such a tedious process.
Of course, all of this will depend on the qualifying hardware and software that you’ve purchased and will put to use prior to the December 31st, 2019 deadline. This is why you need to start thinking through your budget now, and not after you’ve finished your holiday shopping.
If you want to take advantage of Section 179, the items must be purchased, shipped, and installed at your physical location by midnight on December 31st, meaning that not only do you have to place orders and have invoices prepared for your records, but the items in question need to be in use at your office.