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Buy Exmark now or in '05 TAX QUESTION

Discussion in 'Business Operations' started by jccordes2, Jul 22, 2004.

  1. jccordes2

    jccordes2 LawnSite Member
    Posts: 124

    Need advice on purchase. I am part time and planning on going full time Spring '05. I have been thinking about purchasing a new mower now to take advantage of the financing and I hear prices may go up 6 to 10 % cause of steel prices for '05. my Questions is, I have not registered my business name with the state yet, I will Jan '05 for taxes. If I purchase this mower now, will I be able to deduct the interest, the cost of mower? next year when I start the full time business?? or should I wait till next year/spring ??

    any advice would be greatly appreciated

  2. gvandora

    gvandora LawnSite Member
    Posts: 143

    If you're creating a corporation or an limited liability company, you must have created the entity for it to purchase them and to accordingly enjoy any tax benefits.

    If your operating as a sole proprietorship and filing a DBA there is no separate entity established.

    When you purchase large assets for business use, they are depreciated not expensed. Basically, since the mower has a service life of 5 years you must allocate the expense of purchasing the mower of the 5 years of use, e.g. $10,000 mower would create a deduction of $2,000 per year.

    However, it gets a little trickier thanks to what's called a Sec 179 deduction, which lets you elect to expense up to 25,000 in assets the first year. I'm not sure on the details of that unfortunately.

    I would run this question by your accountant to get an answer that encompasses all the specifics of your situtation.
  3. lawnjockey51

    lawnjockey51 LawnSite Member
    Posts: 132

    The 179 election has been increased BIGTIME...

    Normally, you can't take a current business deduction for the entire cost of a capital asset in the year you purchase it, because the asset's usefulness to your business will extend beyond the year in which it was purchased. However, there is an important exception to this rule.

    A special tax provision allows small businesses the option of claiming a deduction in the first year for the entire cost of such qualifying business assets, up to $100,000 in 2003 ($102,000 in 2004 and indexed for inflation in 2005). The 2002 limit was only $24,000 and the substantial increase is due to the enactment of the Jobs and Growth Tax Relief Reconciliation Act of 2003.
  4. mastercare

    mastercare LawnSite Senior Member
    Posts: 289

    It all depends on how much experience your accountant has with small businesses. If you have a CPA who does mostly 1040's for average joe w-2 employees, get a CPA who specializes in small businesses....most CPAS who file tax returns and just fill them out as quickly as possible, which you can do yourself by reading the directions!!

    Anyway, a good CPA is worth his high price. As was mentioned before, if you are to be a corp, you need to have that done in order to write off equipment. As a DBA you can choose whether to use your own SS# or get a Employer ID Number (EIN). Either way, you're responsible for the taxes, rather than a corp.

    There are 3 options or more on how to write off equipment in the first year of business. Option 1 is to buy the equipment outright and take the full deduciton in your first year. Option 2 is to buy it outright, and write off depreciation over a multi-year period. Option 3 is the one I chose.

    Finance the purchase through some creative financing - I bought the mower on a credit card...my business partner (gotta love dad!) gave me the cash for it. I make payments to him. According to your receipt, you bought the entire thing. Now, I too bought the equipment last fall, and really didn't start till this year. It's much cheaper to buy last year's showroom model than to wait till spring and pay more money for the new ones. If you have a good CPA he can set it up so that you actually write off the purchase in the year that it was "put into service."

    Lesson to be learned: A good CPA who specializes in small businesses, is worth every penny!

    Hope this helps!
  5. hoyboy

    hoyboy LawnSite Senior Member
    from Chicago
    Posts: 346

    Mastercare...I don't see the creative financing part of your point. Anyone else see it?
  6. hoyboy

    hoyboy LawnSite Senior Member
    from Chicago
    Posts: 346

    Mastercare...I don't see the creative financing part of your point. Anyone else see it?
  7. mastercare

    mastercare LawnSite Senior Member
    Posts: 289

    Borrowed the money from a person to finance the equipment. That way, you can write off the entire amount at once. Also, dad's "borrowed" money came at a home equity loan rate (3.75%) rather than the financing available for equipment thorugh sheffied finance......9.??%
  8. Turf Medic

    Turf Medic LawnSite Bronze Member
    Posts: 1,073

    Is there some sort of new IRS thing that says you need to have the item paid off before you can deduct it????

    You can deduct the total PRICE of a piece of equipment up to 102K for 2004, however I think that I read somewhere that it is being reduced for tax year 2005. It seems to me that it got reduced to 50K.

    You really need to talk to a tax accountant to see what is the best way to go. Depending on how you set up your business ie sole proprietor, you may be able to offset some of the tax expense of you current job.
  9. gvandora

    gvandora LawnSite Member
    Posts: 143

    The issue here is whether you're using cash basis or accrual basis accounting. If you're using cash basis you must actually expend money to take a deduction, rather if you're using accrual basis, the fact that you use the equipment is basis for the deduction.

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