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YellowDogSVC
11-17-2012, 05:28 PM
Anyone going to take advantage of the last year (possibly) of the Section 179 deduction? I'm seriously considering making a trade and picking up an attachment or two.

AWJ Services
11-18-2012, 09:43 AM
I was set to make a purchase but I decided against it. I will take the tax hit this year as I have no faith in the economy next year. I own everything right now and I feel that it is best to keep my money in the bank and have no payments. It some cases it could be worthwhile if you your net was high enough.

Duekster
11-18-2012, 09:47 AM
Is this the last year or the last year with the bigger deduction limits that Bush put in? I have never hit those. I am also wondering about the wisdom of taking a truck all at once and then not having the deduction for the next 4 years.

Weekend cut easymoney
11-18-2012, 10:01 AM
I guess it matters most if you have lots of taxable income and don't want to take the tax hit all at once... say 40 or 50 k in profit...
Problem with waiting or stinging it out over several years is the laws could change and rates or deductions could change, the uncertainty is what I don't like... realize savings as soon as you see the or else they might go away
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Duekster
11-18-2012, 10:10 AM
There is a good chance many deductions will go away or total deductions are limited.

I think you hit the nail on the head... so many things have been tweaked, or extended and now they are all set to expire. It is hard to make decisions.

I think everyone just wants to know the rules.

Weekend cut easymoney
11-18-2012, 10:29 AM
Problem being; most guys don't know where they stand until after the accountant work s over the taxes... that may happen in January, after its too late...
I don't want to buy a truck I don't need or cannot afford otherwise...
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Duekster
11-18-2012, 10:34 AM
Problem being; most guys don't know where they stand until after the accountant work s over the taxes... that may happen in January, after its too late...
I don't want to buy a truck I don't need or cannot afford otherwise...
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Well, I use QuickBooks so I know where I am all the time. I do not use an Accountant any more. Over the years I have learned a whole lot and I am no longer a partnership so I do not have to file the 1065 K-1 form.

Weekend cut easymoney
11-18-2012, 10:45 AM
I use QuickBooks also, makes it so easy to download bank statements and credit card charges...I try and reconcile the books each month but get behind in October . I like to match statements with what is in QuickBooks...I really need a bookkeeper so I can be out selling or working... like you, I've gotten really efficient at it and pains me to see anyone else monkeying around with it taking twice the time I do...
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Duekster
11-18-2012, 11:19 AM
I use QuickBooks also, makes it so easy to download bank statements and credit card charges...I try and reconcile the books each month but get behind in October . I like to match statements with what is in QuickBooks...I really need a bookkeeper so I can be out selling or working... like you, I've gotten really efficient at it and pains me to see anyone else monkeying around with it taking twice the time I do...
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Not to hi-jack the thread but I can reconcile two CC statements, one bank statement and savings account in less than an hour. Trick is down loading and matching almost daily. Many times I can go to the account, hide anything not in the statement period and hit check all and I am done.

I have many of the items mapped to Turbo Tax too. I need to do a little research about mapping vehicle expenses separately so I do not have to manually adjust as much.

Now moving back to this topic, I am thinking that if I took mileage ( which you can not do if you depreciate) that I would be much better off in the long run. So I am thinking 179 and deprecation is bad if you are going to keep a truck longer than 5 years.

Yellow Dog is talking skid steers or something so I am sure he has to depreciate those.

Weekend cut easymoney
11-18-2012, 05:16 PM
My accountant want s us to personally buy equipment and lease it....back to company ...I am concerned about the hassle factor
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KrayzKajun
11-18-2012, 05:25 PM
I really wasnt planning on any big purchases for 2013 except a sandbagging attachment for my new company. But my CPA thinks i should go ahead and trade in or sell my skidsteer for a larger tracked machine sooner than later. Hes a personal friend of the family and handles the financials for both the companies my mom manages so i usually take his advice.
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Duekster
11-18-2012, 05:34 PM
My accountant want s us to personally buy equipment and lease it....back to company ...I am concerned about the hassle factor
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If you were in a partnership I could see the reasoning. You buy it personally then lease it to the company. But If you are a pass through and a sole then why bother? Did he give you a reason?

Weekend cut easymoney
11-18-2012, 05:40 PM
In partnership, he said it last year in passing...I didn't question him though....maybe so I could increase my own income relative to partner...
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Duekster
11-18-2012, 06:12 PM
In partnership, he said it last year in passing...I didn't question him though....maybe so I could increase my own income relative to partner...
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I signed for much of the equipment then gave away two truck when I went through a partnership breakup. If you buy it and lease it to the company several things happen.

You can take a loss ( depreciation) on it beyond what the company earns say against the wifes income.

You own the equipment and it is not partly owned by the partner so if there is a break up you still have it.

True partnerships and many of them fail sooner or later.

britsteroni
11-18-2012, 06:26 PM
Is this the last year or the last year with the bigger deduction limits that Bush put in? I have never hit those. I am also wondering about the wisdom of taking a truck all at once and then not having the deduction for the next 4 years.

Duekster makes a great point. Many companies will finance equipment and take the complete 179 deduction in the year of purchase. While that lowers taxable income for current year, they are left making payments on the piece of equipment in future years with no tax benefit available. This information is sometimes left out or not explained clearly to the client by their accountant. Sometimes said client winds up mad when they realize what has happened in the future.

Let's put some numbers together for an example:

Company A has taxable profit of $90,000 for 2012. In using code section 179, Company A goes out and purchases new diesel pickup truck for $50,000 November 30,2012. Company A now has taxable profit of $40,000 for 2012. This might result in $10,000 saved in federal and state income taxes.

Now imagine that same diesel truck is financed for 60 months at $900/month. We'll assume $830 of principal and $70 of interest each month to keep things simple. So after December 2012, Company A will still have 59 months of payments to make. Since the entire principal was deducted in 2012, only the monthly interest of $70 will be deductible on the tax return.

So each year for the next four years Company A will pay out $9960 of principal payments it cannot deduct on the tax return. In the 5th year they will pay $9,130 of principal that isn't deductible either.

I think the 179 makes a lot of sense if you have the cash to buy the piece of equipment. If not, cash flow can become strained in years following 179 deduction. Just my two cents...

britsteroni
11-18-2012, 06:29 PM
Forgot to mention that 179 deduction limit for 2012 is $139,000.

Duekster
11-18-2012, 06:45 PM
Duekster makes a great point. Many companies will finance equipment and take the complete 179 deduction in the year of purchase. While that lowers taxable income for current year, they are left making payments on the piece of equipment in future years with no tax benefit available. This information is sometimes left out or not explained clearly to the client by their accountant. Sometimes said client winds up mad when they realize what has happened in the future.

Let's put some numbers together for an example:

Company A has taxable profit of $90,000 for 2012. In using code section 179, Company A goes out and purchases new diesel pickup truck for $50,000 November 30,2012. Company A now has taxable profit of $40,000 for 2012. This might result in $10,000 saved in federal and state income taxes.

Now imagine that same diesel truck is financed for 60 months at $900/month. We'll assume $830 of principal and $70 of interest each month to keep things simple. So after December 2012, Company A will still have 59 months of payments to make. Since the entire principal was deducted in 2012, only the monthly interest of $70 will be deductible on the tax return.

So each year for the next four years Company A will pay out $9960 of principal payments it cannot deduct on the tax return. In the 5th year they will pay $9,130 of principal that isn't deductible either.

I think the 179 makes a lot of sense if you have the cash to buy the piece of equipment. If not, cash flow can become strained in years following 179 deduction. Just my two cents...

If you take milage, then 22 cents of that is depriciation.
If the truck last 200K miles that is $44K
Where is the breaking point with the time value of money.
How many miles per year do you need to drive to make it worth not taking depreciation at all and using milage.

I would have to run some numbers but not sure it is worth it to take milage over depreciation and actual expenses on a truck worth worth over 30K.

AWJ Services
11-18-2012, 07:45 PM
Mileage and depreciation have nothing too do with each other.

britsteroni
11-18-2012, 08:07 PM
If you take milage, then 22 cents of that is depriciation.
If the truck last 200K miles that is $44K
Where is the breaking point with the time value of money.
How many miles per year do you need to drive to make it worth not taking depreciation at all and using milage.

I would have to run some numbers but not sure it is worth it to take milage over depreciation and actual expenses on a truck worth worth over 30K.

You can still use the straight line method of depreciation and claim mileage. And I'm not sure what you mean with the 22 cents. The mileage rate after June 30, 2011 is 55.5 cents per mile. There are a few other rules to claiming both straight line depreciation and mileage. See IRS publication below for more info.

http://www.irs.gov/publications/p463/ch04.html#en_US_2011_publink100033935

YellowDogSVC
11-18-2012, 08:45 PM
I was set to make a purchase but I decided against it. I will take the tax hit this year as I have no faith in the economy next year. I own everything right now and I feel that it is best to keep my money in the bank and have no payments. It some cases it could be worthwhile if you your net was high enough.

I think owning your stuff is wise.. Can't say I followed my own advice recently.

ksss
11-19-2012, 12:41 AM
Depreciating a piece of equipment in one year but paying on it for multiple years is a receipe for a tax nightmare.

Duekster
11-19-2012, 05:21 AM
You can still use the straight line method of depreciation and claim mileage. And I'm not sure what you mean with the 22 cents. The mileage rate after June 30, 2011 is 55.5 cents per mile. There are a few other rules to claiming both straight line depreciation and mileage. See IRS publication below for more info.

http://www.irs.gov/publications/p463/ch04.html#en_US_2011_publink100033935

I was not aware you could use a straight line and take mileage. I have typically used actual expenses plus depreciation.

Mileage will definately be more attractive but then you have that recapture aspect if / when you sell.




SECTION 3. BASIS REDUCTION AMOUNT


For automobiles a taxpayer uses for business purposes, the portion of the business standard mileage rate treated as depreciation is 21 cents per mile for 2008 and 2009, 23 cents per mile for 2010, 22 cents per mile for 2011, and 23 cents per mile for 2012. See section 4.04 of Rev. Proc. 2010-51.

http://www.irs.gov/irb/2012-02_IRB/ar09.html

zabmasonry
11-20-2012, 10:50 AM
Your accountant likely wants you to personally own the equipment so that it is not an asset that is subject to the companies liabilities. Since you actually own the asset, if anything happens to the business then you retain the value of the asset instead of losing it with the business.