Buying Tax Deductions or Investing in the Future?

The economy goes up and the economy goes down. Interest rates go up and interest rates go down. Taxes go up and taxes go … well, up.Often a successful business owner celebrates the fact they had a great year, only to have their spirits dampened with the reality that taxes are going to take a big part of the cash they saved up from that year.The goal for most owners is to minimize the taxes being paid while trying to grow the business. For many, the government taking 35 to 50 percent or more of profits can really leave one wondering if its all worth it.In order to continue to grow you need funding to cover increasing accounts receivable, inventories, equipment, improvements and employee training, just to name a few. While we know the government wants 35 to 50 percent of your profits, we also know the flip side of that is true too. Any deductible expenses you incur can cut your tax bill by that same 35 to 50 percent.The key is to make investments in only those categories that are likely to help you to grow profitably. Never just go out and buy tax deductions – rather invest in inventories, equipment, training and so forth, that will likely give you profitable growth. Owners who blindly buy tax deductions, like a new vehicle or piece of equipment just to get the deduction are making a mistake. Always ask yourself if the purchase will help you to increase your profitable growth. If it does, go for it, but if it is just meant to create a tax deduction but has no real utility in your business then it is a waste of money.Spending $10,000 on something you don’t really need to save $4,000 in taxes just leaves you out of pocket $6,000. On the other hand, spending $10,000 for something you do need, like inventory in a new product line that will spur $50,000 in new revenues makes a lot sense.What qualifies as a tax deduction or credit changes from year to year. Section 179 deduction limits go up and down. You want to take advantage of every deduction you can, but the key is spending in areas that will increase your profitable growth. Choose those areas that build profits and still qualify for tax deductions.The difficulty with spending to build that profitable growth is finding the cash you need. Bank financing, credit cards, vendor financing and online funding sources continue to be ways to access the cash you need.Many business owners aren’t familiar with online funding sources. One place to check it out is Kabbage.com. Kabbage does a great job of explaining the pros and cons of using an online funding source to acquire fast working capital​.Online sources have become increasing popular since borrowers can quickly and easily access the funding they need online. Consider all your options and choose the best one for you.