Equipment - depreciation

Discussion in 'Business Operations' started by 1mowlawn, Mar 5, 2003.

  1. 1mowlawn

    1mowlawn LawnSite Member
    Posts: 44

    I need some advice, last year I purchased a ztr, trimmer and blower to do a few lawns for family and friends, this year over the winter I decided I would like to do a LCO partime, buy some more equip. and run this as a LLC. The question I have is how do I depreciation the equipment I bought last year? The equipment is all paid off, and totalled approx. $8500

  2. John Allin

    John Allin LawnSite Bronze Member
    Posts: 1,489

    It's possible that you may be able to write it all off in one year under a special once a year deductible total for equipment (it may be $10k - but I'm not certain).

    Talk to a tax accountant to be certain about the rules concerning this.
  3. rodfather

    rodfather LawnSite Fanatic
    Posts: 9,501

    Ask and/or send a PM to bruces (Bruce Stansberry)...he's a LS member who is also a CPA. He knows more than most of us (collectively) know about those issues...really:D
  4. Nebraska

    Nebraska LawnSite Senior Member
    Posts: 525

    File 1040X and take either the Section 179 on all of it for the prior year or depreciate it out.
  5. bruces

    bruces LawnSite Senior Member
    Posts: 648

    If you are talking about 2002 purchases you can file a schedule C for 2002, report your business income from whatever you got paid for, and take the related deductions.

    One of the deductions will be depreciation on the equipment. You have a choice of either writing off the equipment in the year of purchase (up to 24,000) or writing it off over the life of the equipment as prescribed by the IRS (most equipment is either 5 or 7 years). If this results in a loss for the business, that loss can offset your other income (wages) and reduce your tax liability.

    Remember, however, if you write it all off this year and make money in 2003, you won't have equipment write offs in 2003 unless you buy more equipment.

    If you have filed your tax return already, consider filing an amended return to claim the business.

    Consult your tax preparer about the best way to go, and consider the future years as well as last year.
  6. KerryB

    KerryB LawnSite Senior Member
    Posts: 661

    Bruces, wouldnt he run into a problem as far as startup costs?
  7. bruces

    bruces LawnSite Senior Member
    Posts: 648

    If you mean as far as capitalizing start up costs, it probably depends on whether or not he has income to report in the year of purchase. For the most part, I don't really see much "start up costs" in the one person lawn operation for most people.

    Most buy the equipment, do some advertising and get to work.

    Basically a going business from the time he starts working.

    Not like a bigger business doing market research, setting up locations, and all the other costs involved in starting some types of businesses.

    I don't really see much problem there if he is working in the year he bought the equipment. If he is just working for free (family, etc.) the first year, then he probably isn't in business and the equipment depreciation would start in the year the business actually starts. Technically the equipment would then be depreciated based on the lower of cost or fair market value at the time converted to business use.

    Example, mower purchased in 2002 for $6,000
    used for personal use only.

    Start business in 2003, mower fair market value 5,000, depreciate based on 5,000 value.
  8. KerryB

    KerryB LawnSite Senior Member
    Posts: 661

    Thanks Bruce,
    I'm a little rusty lol.
  9. 1mowlawn

    1mowlawn LawnSite Member
    Posts: 44

    I did not get paid for my work in 2002, I did mainly friends & relatives and elderly people from church, 5 lawns in total. This year 2003 I will work for wages. I also plan on buying QuickBooks, setting up a separate checking acct. and enrolling in a credit card plan VISA (Bass Pro Shop) rewards acct. I think I'm on the right track to running this as business. I've been estimating all my new customers fairly high and they are not turning me down, I hope this continues, I have 15 customers lined up for 2003. Thanks
  10. bruces

    bruces LawnSite Senior Member
    Posts: 648

    Sounds to me like you are starting your business in 2003.

    You will be taking depreciation deductions, etc. on your 2003 return.

    A separate checking account (and credit card) is a good idea, it will make things easier to keep track of.

    If you get much work, you might want to talk with your tax preparer before you get too far in to the year to make sure you aren't going to get an unpleasant tax surprise next April.

    Good luck!

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