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I have a small LLC that makes a decent amount of money. I have always been told that come tax time, you can either pay money to the government, or you can buy equipment, supplies, etc for your business and use that as a write-off to offset the taxes.

How do I know what this write-off amount is so that I can spend the max amount of money on write-offs and not have to pay that money in taxes? I would much rather be putting this money into my business instead of losing it.

Is there a formula for this?

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    Revenue - Expenses = Profit. Avoiding income tax means limiting your profit. There's no magic number, spending on your business means less income to you, so it's a trade off. – Hart CO Oct 25 '17 at 22:17
  • @HartCO I know a family that has a business and at the end of the year their CPA sometimes instructs them that they need to buy a vehicle for the business as a write-off. I guess I am confused how this is calculated and known. Hence the question above. – Nic Hubbard Oct 25 '17 at 22:28
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    I'd be curious to hear their CPA's reasoning. One example I can think of is limiting your income if you are drawing social security benefits but not yet the full retirement age. For most people, foregoing income to save taxes doesn't make sense, but there could be good reason to shift timing of planned expenses. – Hart CO Oct 25 '17 at 22:51
  • @HartCO maybe the purchase will force a drop into a lower tax bracket? – mkennedy Oct 25 '17 at 23:47
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    Simply put, figure out how much you are going to have "net profit" on which you will be paying taxes, and then make sure you have an equal expense to match it so you won't pay the tax, it is not that hard to understand the concept. As far as HOW MUCH, that's on you to know by looking at your books. You can even give to charity but there is a cap on that, so make sure you know how much, maybe do that and then what's left do for yourself, if you are feeling altruistic. – GµårÐïåñ Oct 25 '17 at 23:59
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(I'm assuming USA tax code as this is untagged)

As the comments above suggest there is no "right" answer or easy formula. The main issue is that you likely got into business to make money and if you make money consistently you will pay taxes. Reinvesting generally should be a business decision where the main concern is revenue growth and taxes are an important but secondary concern.

Taxes can be complicated, but for a small LLC shouldn't be that bad. I highly recommend that you take some time closely analyze your business and personal taxes for the previous year. Once you understand the problem better, you can optimize around it. If it is a big concern, some companies buy software so they can estimate their taxes periodically through the year and make better decisions.

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