Why Businesses Should Plan for Fixed Asset Purchases

Are you a small business owner? If so, now is the time to start planning for fixed asset purchases, because if you make those purchases between now and the end of the year, this could help reduce your 2022 tax liability when it comes time to file.

What is a fixed asset?

Fixed assets are things that you buy for your business that are designed to help improve business operations (or in some cases, grow your business) over an extended period of time that are not likely to be quickly converted into cash. Examples of fixed assets include equipment, land, and buildings, among others.  

Fixed assets and tax planning

Can the purchase of fixed assets be part of your tax planning strategy? Absolutely. The timing of purchases presents an opportunity for business owners to reduce their tax liability. For example, in the year 2021, scrap yard owners throughout the U.S. made record-breaking profits.  As the peak of the pandemic started to pass and businesses began to reopen, demand for finished goods began to improve. Sales for everything from washers and dryers to HVAC systems, to new cars and trucks, blew through the roof.

Month after month, quarter after quarter, scrap yard revenues kept climbing. It was an absolute banner year for profits. However, as 2021 began to reach its end, owners of these companies started taking a closer look at their tax liability.  They also began to take a close look at their operating equipment, such as shredders (machines that shred large pieces of metal into smaller pieces of metal), trucking equipment, scrap hauling containers, and industrial scales, among others, to see what would need to be upgraded or replaced within the next several years.

Nearly all of these businesses made the decision to make these large-scale purchases before December 31, 2021–  as part of their tax planning strategy.  Not only did this allow them to get the equipment they needed, but it also helped reduce their 2021 tax liability.

In closing

If you have questions about how planned fixed asset purchases can be incorporated into your company’s tax planning strategy, or if you have questions about what qualifies as a fixed asset and/or how fixed asset depreciation can help mitigate your tax liability in the future, we can help. Call the office of Hughes, Snell & Co., PA today to schedule a time to speak with an expert.