2007 tax loss vs. 2008 less profit?

Discussion in 'Business Operations' started by Exact Rototilling, Nov 26, 2007.

  1. Exact Rototilling

    Exact Rototilling LawnSite Fanatic
    Posts: 5,362

    I started my Lawn & Garden business in 2007 and I have some minimal profits since I focused on Rototilling almost exclusively and purchased equipment this year. I need to buy roughly $6,500 worth of equipment for next season: enclosed trailer, larger WB mower etc.

    Am I better off buying the equipment in the 2008 tax year so I don't show an excessive loss vs. some profit now "OR" am I better off buying the mower before Jan 1st to get a slightly better price on the mower due to a year end sale. Discount is roughly $300 or so.

    FYI: I also have another unrelated home business that pays the bill and I use Turbo Tax schedule C for my sole proprietor biz #1 which is unrelated to my Lawn care business?

    Thanks for any input :)

    SOUTHERNGREENSCAPES LawnSite Senior Member
    Posts: 763

    ask a tax guy. don't go by what people say on here. the laws change so fast, you can get yourself into a lot of trouble. my guy told me last year to show a loss the first two years and then show a small profit the third year. but that was last year and i don't know how tax laws have changed.
  3. Exact Rototilling

    Exact Rototilling LawnSite Fanatic
    Posts: 5,362

    I actually called the IRS and the answer was fuzzy . . . deprecation . . . more fuzzy answers. I'm sure a private tax professional could do a better job of answering. I have another home based business that I actually make profit on and I admit I do stumble through the Turbo Tax interview every year.

    I'm guessing my real question is - is it really to my advantage to carry a loss from 2007 into the 2008 tax year to save few hundred bucks on the purchase price of a mower? :rolleyes:
  4. zz4guy

    zz4guy LawnSite Senior Member
    Posts: 901

    You'll have to depreciate the new equipment meaning divide the price of it by the number of years in its expected life. That number is how much you can deduct each year. IMO you might as well get started on the deductions. Why wait till next year for some extra cash? The gobernment sure won't do anything useful with it!
  5. causalitist

    causalitist LawnSite Senior Member
    Posts: 610

    your better off buying the stuff jan 1st 08 ... right now buy only what you need to offset any 07 profit.
    the tax write off for the big ticket items will be stretched out over 5 years or so... my approximaion is that the $6500 will get you roughly a $1000 deduction the first year.. more the second year, more the third, and then tapering off.

    if you were to pay tax on that $1000 next year (because u bought it all this year) , were talking $400-500 tax dollars.

    so i would say you will save 300-500 in taxes if u buy it next year.... but this is assuming you make enough to use it, and its not unlikely you'll end up buying ALOT of misc crap you didnt think of... i would not be suprised if yourfirst year income was low enough and you bought enough other crap that it wouldnt even matter...

    but ... at this point its looking like waiting will be best.

    im waiting till jan 1rst for about $4000 in purchases myself.
  6. Happy Frog

    Happy Frog LawnSite Bronze Member
    Posts: 1,224

    It depends how much profit you expect next year:
    You can buy it after January 1st and consider it as an "expense" for 2008, meaning you can deduct the entire amount that year and thus not having to pay tax on that amount (consider that you are reducing your net profit by the cost of your equipment). If you are in a 35% tax bracket, you will save 35% of the cost of your equipment.
    Your other option is to depreciate your equipment. This is the best solution if you cannot "expense" it (because of high cost of equipment or low net profit).
    In this case, the cost of your equipment will be accounted over a period of five years (it is a specific percentile for each year) and you will "expense" the cost over these five years.
    I like to "expense" my equipment rather than depreciate it but that's me... :dancing:
  7. Exact Rototilling

    Exact Rototilling LawnSite Fanatic
    Posts: 5,362

    My modest projections even with a tighter economy is that I will have the $6,500 worth of equipment I will purchase for 2008 paid for or at the break even point sometime around June or July. For my other business I have done both deprecation and as an expense.

    I'm hoping that Gary @ Better Outdoor Products doesn't raise the prices in Jan for the Quick 36 Samurai. It stands to reason that Jan is the lick your financial wounds from Christmas spending so I hope the best deal of the year will be in Jan. Even if the price goes up after Jan 1st - oh well I will live with it.
  8. fknippenberg

    fknippenberg LawnSite Member
    Posts: 49

    You could probabbly do a Section 179 depreciation for most of it and write it all of this year - however your best bet is to get an accountant and put him on retainer - it will be the best money you ever spent.
  9. Az Gardener

    Az Gardener LawnSite Gold Member
    Posts: 3,899

    Buy it now. You pay tax's on profit. You get refunds with losses. Next year raise your salary/wage to minimize your profit if you need to. You mentioned needing to purchase many smaller items that total 6500, you only depreciate the bigger ticket items the others stuff is just written off the year of purchase. By the way I am just parroting the discussion I just had with my tax professional. The object is to keep all the money you can, legally of course. Remember you pay tax's on profits. Spend the money or pay it to uncle Sam

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