Five-step plan for using your $20,000 tax deduction wisely

Anthony Caruana
16 June, 2015
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As part of the recent Federal budget, it was announced businesses could take advantage of an accelerated depreciation limit. In short, it means businesses can spend up to $20,000 on items and claim an immediate tax deduction, rather than only being able claim a third of that each year over three years.

So, how is this deduction best used?

1. Start with an audit

Walk through your workplace and make a list of all the hardware you’re using. We’re not just talking about computers. List all the tools, machines, point of sale systems (that’s the new way of saying cash register) and other office equipment.

Then, go through the list and note when it was purchased, what condition it’s in and how important it is for the business. We’d suggest using a scale of one to five for the importance, with one being if it disappeared you would barely notice, to five where business would grind to a halt if the equipment failed.

It’s also important to make a risk evaluation a part of the prioritisation. You may have an older system in place that is working perfectly. However, it may be out of support or the supplier has long since disappeared. Now could be the time to consider a better supported system.

2. Prioritise

Now that you know what you’ve got, what state it’s in and how important it is, you can make a shopping list.

Create a prioritised list with the items most needing replacement at the top of the list.

3. Pricing

Now the rubber hits the road. Work your way down the prioritised list and get some pricing on what it will cost to replace each item.

4. Review your list

It’s entirely normal for your priorities to change based on the dollars involved, so don’t worry if you feel the need to move things around. It may be the case that something further down the list will cost such a small amount it makes sense to replace it earlier than a higher priority item.

For example, replacing a computer in the office may not be high on the list, but it may improve the productivity of a staff member significantly. So, there may be some benefits in making the swap ahead of some other purchase.

5. Shop wisely

A $20,000 tax deduction is not free money. Remember, you don’t get the entire $20,000 back when you make the purchase. It’s a reduction in taxable income. And you’ll need to have that money available. If $20,000 will smash your cash-flow, then don’t spend it. There’s no point creating financial hardship just to cash in on a tax deduction.

Shop around and don’t discount the idea of looking at used or refurbished items with solid warranty support. That will help your $20,000 go further.

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