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Ijustwantausername
12-18-2012, 11:43 PM
Okay, I will try not to confuse you in the process. So I spent the day yesterday adding up all my expenses and my profit. Basically I want to know how expenses offset the taxes I would have to pay. More specifically, say I bought a piece of equipment for $2000 next week to offset the amount of taxes I would have to pay this year - lets say I am expected to pay $3000 in taxes. How much would that $2000 piece of equipment offset the $3000 in taxes? Would it be substantial enough to justify it? Also, let's just say my profit was $40K for the year.

Also, I know "any business expense" will help affect taxes, I just want to know how and by how much.

Is there a formula to plug in?

The reason I ask is because my friends dad is a contractor and he buys a new truck every year to "offset" the taxes he would already have to pay. So what does that mean for me? Thanks a lot.

JContracting
12-19-2012, 01:33 AM
There isn't really a formula. 40k in net profit right now. Less the $2000 for a mower you buy tomorrow. You then have 38k you are liable to pay taxes on. For a rough number the income taxes you pay are 25%, so you'd be paying in to Nobongo, about $9500.

rreyn1812
12-19-2012, 03:02 PM
You would be able to apply all the cost against this years taxes if you take the total expense against this year. I believe the tax rules state that you must then use the asset for at least 5 years or you would be penalized. The other option is to depreciate the assets (mower) value over some period of time, i.e., 5 years. You would then take 1/5 the cost of the mower for each of the 5 years. If you get into multi year depreciation, I would have a tax professional do your taxes.

Woody82986
12-19-2012, 04:32 PM
I'd probably spend a couple hundred dollars and go sit down with a CPA for an hour and have him walk you through some things and ask him questions. You could also just sit down with some tax forms and plug in the numbers you have where it tells you to plug in those numbers and figure out the answer to your question by playing with the numbers.

KeystoneLawn&Landscaping
12-19-2012, 05:10 PM
Also, if you are getting to the 40k+ in net income it may be time to form a LLC. As previously stated, time for a CPA!

deschampsbrothers
12-20-2012, 12:08 AM
Ask other business owners who u know who they use, ask them how pricing works for there service and what sets them apart from previous accountants they used, and don't just find one and go with them, i heard out 3 accountants before i made my decision. i found mine through my grandpas friend who was a successful business man himself. so try and find an elderly person that you know who has done things right financially in their life. it really can make or break your business. I would not attempt this on your own because if uncle sam comes knocking it seems like u would be royally screwed.
my pops always told me to be a lawyer, accountant or politician because any successful business owner will have to pay you at some point. time to bite the bullet and just do it. better off doing it right from the beginning than getting audited and having to pay back taxes with a crazy interest rate applied, ive heard some bad stories, trust me you dont want to be that person to go buy something and find out all your accounts been froze by the government

deschampsbrothers
12-20-2012, 12:11 AM
and any accountant that is going to charge you for the first sit down meeting for you to hear him or her out is not the person you should use. thats there time to sell you on their service, they are not benefiting you any when you have that first talk. if they want your business make them earn it.

KeystoneLawn&Landscaping
12-20-2012, 09:59 AM
I used Dave Ramseys Endorsed Local Provider service. My CPA is as strait and precise as you could ever ask for.

http://www.daveramsey.com/elp/home/

Roger
12-20-2012, 01:21 PM
and any accountant that is going to charge you for the first sit down meeting for you to hear him or her out is not the person you should use. thats there time to sell you on their service, they are not benefiting you any when you have that first talk. if they want your business make them earn it.

I always mow everybody's lawn the first time for free, so that the customer will know that I earned their business. It works every time.

larryinalabama
12-20-2012, 01:30 PM
Bottom line is a 2k purchase will save you 300$ on ssi tax and likley 150$ on income tax, it will be less than 500$ and closer to 300$.


I wouldnt buy anything that you wont be using.

Pietro
12-20-2012, 10:30 PM
You can not write off the entire purchase. So dont buy it unless you need it. It doesnt work in your favor even if you can write off $1500 of it. If you think it does......send me a check for 2K, ill cash it and come tax time I will mail you $1500!

Richard Martin
12-21-2012, 07:39 AM
You can not write off the entire purchase. So dont buy it unless you need it. It doesnt work in your favor even if you can write off $1500 of it. If you think it does......send me a check for 2K, ill cash it and come tax time I will mail you $1500!

Sure you can. There has been a temporary tax break for small businesses in place for a few years that allows you to deduct up to $139,000 worth of equipment purchases for this year. The amount has varied for each year it has been in effect. That tax break drops to $25,000 for next year.

"Clark provided the example of a business in the 35-percent tax bracket that purchases a piece of equipment costing $50,000: Under the 2012 Section 179 benefit, that business can deduct the entire cost of the equipment, resulting in a tax savings of $17,500 and a net cost of $32,500. Under the 2013 benefit, though, that business could only deduct the maximum of $25,000, resulting in a tax savings of $8,750 and a net cost of $41,250."

http://www.thereporteronline.com/article/20121220/NEWS01/121229967/tax-break-for-small-businesses-being-reduced-at-year-s-end

Richard Martin
12-21-2012, 07:42 AM
Oh, and to answer the original question, I figure 33% when estimating my tax liabilities.

britsteroni
12-21-2012, 10:16 AM
Okay, I will try not to confuse you in the process. So I spent the day yesterday adding up all my expenses and my profit. Basically I want to know how expenses offset the taxes I would have to pay. More specifically, say I bought a piece of equipment for $2000 next week to offset the amount of taxes I would have to pay this year - lets say I am expected to pay $3000 in taxes. How much would that $2000 piece of equipment offset the $3000 in taxes? Would it be substantial enough to justify it? Also, let's just say my profit was $40K for the year.

Also, I know "any business expense" will help affect taxes, I just want to know how and by how much.

Is there a formula to plug in?

The reason I ask is because my friends dad is a contractor and he buys a new truck every year to "offset" the taxes he would already have to pay. So what does that mean for me? Thanks a lot.


I'll try to offer any help I can. It is almost Christmas and most CPA's are slow this time of year, including myself.

First off, ignore most of the previous posters who have given off the cuff advice that hasn't been very accurate. Forming an LLC will not help you save a dime on taxes. You could make the election to have the LLC taxed as an S-Corporation, but then you bring on additional payroll and income tax filing requirements that often eat into potential social security tax savings.

Most accountants push clients into LLC's taxed as S-Corps because it benefits the accountant (more returns to file and more time spent on the account = higher billings).

Now to address some of your questions:

If you want helpful advice, you need to post real numbers. Here is an exercise that will help:

Total Receipts - Total Expenses = Gross Profit

Some expenses deductions you might not be tracking correctly:
-Fuel Tax Credit
-Depreciation on your truck
-Mileage and expenses on your truck
-In home office deduction
-Retirement savings contribution credit
-Business use portion of personal items (cell phones, laptops, etc.)

I'd be glad to offer any general advice to get you going in the right direction, but you are going to have to give more info than the general stuff you posted.

One of the key elements to decide, that some other hinted at, is whether or not the piece of equipment is going to HELP YOU MAKE MORE MONEY. Spending a dollar to save 20 cents on taxes makes ZERO sense unless you plan on turning that dollar spent into additional revenue and profit in the future.

Gabe
MO CPA License # = 2012041631