View Full Version : What is the advantage of writing equipment off?
09-25-2001, 12:10 AM
hi, i am new into the lawn mowing business. I was wondering what is the advantage of depreciation of equipment and writing off equipment. I guess i dont understand but hear people talking about it. Any help is greatly appreciated to the new member..... give it up to lawnsite.com!! thanks guys!!!:blob3:
09-25-2001, 12:13 AM
tax deductions. You'd be well off to ask a tax person about it. - even if you just go to H&R Block,or something. You may want to do a search in the business forum, also. That's PROBably where this thread is going to end up, I'd imagine, you'll get alot more suitable advice there. I hope this helps. Where abouts in Michigan are you?
09-25-2001, 06:20 AM
If you claim all the income that you earn, then that money is taxable. Any profit can be reduced by "writing off" equipment, repairs, etc. That reduces the amount of profit and the amount of taxes that you will owe. Of course if you don't claim any income then you probably won't want to claim any deductions. The IRS might want to talk to you! We're all honest here right?
09-25-2001, 09:34 AM
A simplified example: You have $10,000 gross income. You have $6000 worth of equipment. You depreciate the 6000 over, say, over 6 years, meaning you take $1000 off the income each year for 6 years- pay taxes on 9,000 instead of 10,000. (You will also get to take off all expenses, such as gasoline for mowers, mileage, etc.)
09-25-2001, 10:07 AM
When you buy equipment, it is not Money you pay yourself! It's Money you spend to make Money!
You write it off & Lower your Taxes. Write off all you can & then some!
Do you want to pay taxes on every dime you make or do you want to pay taxes only on what you pay yourself? There's a big Difference!
09-25-2001, 11:28 AM
so are you saying that if i have like a truck worth 15,000, mowers, trimmers, blowers, edger, areators, thatchers,fertilizer spreaders, trailers, all together, all togther worth about 25,000. so thats 40,000 worth of equipment. Now, im kinda different then anyone else, i love good equipment, so i have great equipment, but id say i will make around $15- $20 k per mowing season. How about would someone write off this equipment. Would i really be saving that much money from taxes? Cause if look at it this way, im really not paying myself much at all, all the money im making is going right back into the business. ??? Any suggestions would help guys. Thanks. :confused:
09-25-2001, 11:31 AM
Dont forget, if you write it off when you eventually sell it you must report the sale as income.
09-25-2001, 11:34 AM
Most of the time when you start out, a lot of the profit is put right back into the business. You have to check with the IRS. Different equipment is able to be depreciated at different rates. A truck would be depreciated over a number of years. Smaller items like trimmers, and mowers can be depreciated in the same year that you buy them up to a certain amount. I think that level was $19k last year. In theory, if you make 15k in one year and buy 15k of equipment in the same year, you made no profit and don't pay any taxes. If you take out loans you can only deduct the principal and interest payments that you make in that year.
09-25-2001, 01:54 PM
Originally posted by watatrp
If you take out loans you can only deduct the principal and interest payments that you make in that year.
Basically the IRS doesnt care where you get the money. You dont report loans as income, and you dont report payments as expenses. You deduct only what you are able to re: purchases, and whatever interest you pay that year.
In other words, if you borrowed 100k the end of December and only spent 10k by the 31st you cant deduct the whole 100k, only the 10k on the appropriate line item.
09-25-2001, 02:03 PM
Yes, you are correct. I was in error when I said you can only deduct the principal and interest on loans for equipment. If I take out a loan for a specific piece of equipment, I can deduct the entire cost of the equipment plus the interest paid on that loan for that year as long as the equipment falls under IRS guidelines for deductions.
I think what you are talking about is a lump sum loan used at your discretion. In that case you can deduct only for equipment purchased. I usually take my loans out for specific pieces of equipment. Why borrow more than I need?
10-02-2001, 01:18 PM
Sometimes you're going to want to take a full write-off, other times, you're wanting to take it over a couple of years. Get a good accountant. Somebody that you can trust completly. Then between the two of you, figure out what's best for you. At least the first few years.
10-06-2001, 10:52 AM
I usually take my loans out for specific pieces of equipment. Why borrow more than I need?
If you don't have a negative cash flow in slow months, you probably shouldn't. Some people do this to help with payroll in the winter. Another way to go would be a line of credit. If you need the cash, it's there.
I recommend that you take a couple of business courses at your local community college, and make an appointment to see a CPA. This may save you some grief if you are ever audited, and a lot of money if you aren't.
You sell $40,000 worth of work this year. if you claim no expenses of any kind, you will pay taxes for $40,000 of income.
You sell 40,000 worth of work this year. If you bought $20,000 woth of equpment, you pay taxes on only $20,000 because the $20,000 in equipment is part of what it cost you to sell $40,000 worth of buisness.
i suspect you are not paying your taxes or you would khave some incling of what expenses are. eslawns is right - take a class,or raed a book or get an accountant and go legit!
10-12-2001, 09:36 PM
If you buy $20k of equipment, you can't write off $20k in the same year. It'll take a few years to write it all off.
But.... you still should do it to be legit.
I thought 20,000 was the max you could expense in 1 year. ??
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