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Small business expenses

Discussion in 'Business Operations' started by Joel B., Dec 28, 2002.

  1. Joel B.

    Joel B. LawnSite Senior Member
    from MN
    Posts: 458

    Does anyone know the maximum amount of small business expenses allowed for one year? Or maybe a good "tax laws for dummies" website.

    Thank you,

    Joel B.
  2. dhicks

    dhicks Member
    Posts: 771

    The answer is subjective to the size of the company claiming business expenses. The ratio of expenses should be inline with profits, or profit potential. In other words, I would not claim more than I spent in expenses. Also, at what point is your expenses going to wave a red flag at the IRS?
  3. rodfather

    rodfather LawnSite Fanatic
    Posts: 9,501

    Good point...not so important as how much in expenses, but the type as well. Dollar amount isn't always alarms the IRS.
  4. Fvstringpicker

    Fvstringpicker LawnSite Fanatic
    Posts: 7,601

    In my other life, I am a CPA and X-tax auditor. There is no max per se for expenses. Primarily, to deduct expenses, your purpose in business is to make a profit. Everything else is considered a hobby. Generally the IRS views this as a profit 2 out of 5 years. The main thing is to make sure your expenses can be judged by a reasonable man as business related. Trying to write off fishing tackle as a lawncare business expense for example is probably a mistake. Keep good records and be able to show that the expenses are ordinary and necessary for operating the business. My advise would be to get a good tax practicioner, preferably a CPA. I'm not trying to push my profession, but CPA's have to adhere to state and national standards.
  5. walker-talker

    walker-talker LawnSite Platinum Member
    from Midwest
    Posts: 4,771

    Fvstringpicker, I read of those that purchase an ATV for pulling aerators, wagons and such. Do you see this as a legitimate write off. More importantly, do you think the IRS see this as a legitimate write off?

    Just curious
  6. B. Phagan

    B. Phagan LawnSite Member
    Posts: 95

    Some great thought guys........I always encourage people in our profession to get a CPA, not an accountant.....what's the diff?

    Start with the education required to become a CPA, then pass a rigorous exam to be able to practice, then get a ton (I think it's 80 every two years) of CEU's on tax law changes.........conversely, an accountant is not required to keep up with tax laws, nor the education, etc.

    A CPA should be your best pal in your business.....my CPA is a woman so don't discriminate!! Look for a small CPA office, maybe just one or two so you don't end up paying for the mahogany and the nickel and diming you to death anytime you call for advice.

    Set up appts with them every quarter or until you feel comfortable with finance....get the book "Accounting for Dummies", about $20 and catch up on the jargon.......before you write back, I have the book also!

    Check with them also on legalities such as incorporation for more personal and business protection, P&L Statements, Balance Sheets, etc.

    CPA's are worth their weight in gold!!!
  7. bubble boy

    bubble boy LawnSite Bronze Member
    Posts: 1,020

    and don't be afraid to call you CPA.

    what he or she charges you for the call is likely less than the hours he might need to bill for the bookeeping mess you make.

    or the penalties. or the missed deductions...

    did someone say they are gold????;)
  8. Fvstringpicker

    Fvstringpicker LawnSite Fanatic
    Posts: 7,601

    An asset purchased for business (the production of income) is a deductable item. In short, an ATV purchased for pulling aerators, wagons etc. used in the production of income is deductable. In fact, I am considering such equipment for spray applications. The main thing to remember is to keep the purchases ordinary and necessary for business (is the asset used in the production of income?) The IRS is generally more liberal in interpretation of deductability when there is a bona fide business earning a profit.
    One caveat, don't try too much of a stretch when defining "business assets". For example you wouldn't want to try to deduct a D5 dozier when you'er in a small lawncare business, unless you're prepared to show it's used regularly in servicing clients and producing income.
  9. Fvstringpicker

    Fvstringpicker LawnSite Fanatic
    Posts: 7,601

    Just to clarify my above post. I used equipment and assets interchangeably. Certain assets, (land), are not deductable.
    You also have a choice of whether to take the deduction for depreciable assets as a one time write off under section 179
    ( within limits) or as depreciation over their useful (depreciable) life. Defining useful life for tax purposes is a whole new ball game.
  10. bruces

    bruces LawnSite Senior Member
    Posts: 648

    As Fvstringpicker stated, it all depends on the use. If you buy it and aren't using it in the business, you could lose the deduction. If you are using it, no problem. The IRS will have no problem with legit business expenses.

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