Schedule C question

Discussion in 'Business Operations' started by KDJ, Feb 13, 2002.

  1. KDJ

    KDJ LawnSite Senior Member
    Messages: 325

    If you buy a mower valued at let say 5000. dollars (cash) would one use line 13 and go Depreciation and section 179 expense deduction that would require the completion of form 4562. It looks to me that over five years I could reduce my tax liability buy about seven hundred dollars. The Paperwork Reduction Act Notice states the estimated average time to complete is:
    Recordkeeping...................37hr. 19min
    learning law and/or form......5hr. 10min
    Preparing form......................5hr. 59min

    That is per year. Total time over five years is 214hr. 40min
    The General instructions to perform this amazing task is a mear 12 pages long. But 700 dollars is 700 dollars or would it be 2.90 per hr ?

    My CPA says this is the way to do it. My brother also is a seasoned CPA and he agrees. Iam told anything over 200. dollars should be done this way.

    I myself would just take the 5000 now and not go though the hassle.

    How do you guys handle this and is there a dollars amount that will make a differents.

    Flat Line or not???
  2. GroundKprs

    GroundKprs LawnSite Bronze Member
    Messages: 1,969

    A very good CPA told me years ago: "Use sec 179 to the max; you will always need new equipment, even if you don't anticipate it today. By using depreciation, you are paying more tax than necessary today." Just be sure to follow the rules for sec 179, limits and income limits. Just follow directions line by line.

    Only real reason to use depr instead of sec 179 is if you wish to gamble that tax rate is going to go up dramatically in the near future. Or if you expect that you will be moving into a higher tax bracket in the near future. Even in these two scenarios, you may be money behind, because you are paying more taxes than necessary until these events occur (if they do?).
  3. landscaper3

    landscaper3 LawnSite Bronze Member
    Messages: 1,354

    Have you though about leases? We lease all our trucks, sanders and mowers with a 10% by out. Our benifit there is NO depreciation values for its 100% tax deductable and helps not to ty up finacial reports for our leases dont show up as a loan or credit card so if you need to borrow money from the banks they dont show up which really helps. Just a suggestion!!!!
  4. Did your CPA explain to you the advantage of 5 year depreciation over 179? He's the Pro and knows your situation, but you asked so:
    I always take the 179 dep. to help recover equipment expenses the 1st year. This years limit is 24,000.
    $5,000 mower
    15.3% SE tax = 765.00
    15% Fed tax = 750.00
    5% State tax = 250.00 (CO is 5%)
    This means my tax is reduced at least 1,765.00 the year I purchase the mower. You can figure your actual Fed tax rate-I just used the minimum to illustrate. You said over 5 years you could reduce your taxes by 700, did you mean per year or 1 time? I'm not clear what you meant. As for the hours, either way it shouldn't require more than a couple hours a year on the 4562 form's for 10-30 pcs of equipment. Get your CPA bro to help you once so you make sure you're getting it right.
  5. Getmow

    Getmow LawnSite Senior Member
    from VA
    Messages: 445

    I am with the "old timers"; write off as much as you can as early as you can. I addition put as much into a retirement account that is non taxable. The PROFESSIONAL CPA can steer you in the right direction.
  6. A1 Lawn@Landscapes

    A1 Lawn@Landscapes LawnSite Member
    Messages: 220

    I work for H+R Block in the off season. Always take the 179 to the max. You never know what the future holds. You also never know what the IRS will change. The changes this year almost caused me to do something else. More changes in store for next year.
  7. smburgess

    smburgess LawnSite Senior Member
    Messages: 467

    179 MAX is the way I go!
  8. marcie

    marcie LawnSite Member
    Messages: 21

    I prefer section 179. I also work for H & R Block in the off season.
    The only real reason to use depreciation over time ( expected life), is if you expect to increase your next few profits to the point that you will need the additional tax break. But even with trucks the limit on section 179 is $3060 for the year, so you are stuck with doing that each year. The equipment will last only so long, depending on care and conditions. Shame on the CPA's for not explaining, why you may need to spread it out over time.
  9. morturf

    morturf LawnSite Senior Member
    from midwest
    Messages: 476

    Here is really good one on depreciation and some items. This strays a little off the truck topic but shows that you should consult your accountant before those big purchases. Ten years ago this was.

    I own a large storage shed, the roof started leaking and needed a new roof because it was almost 30 years old. I am very picky about these things so I immediately tore off the old one and replaced it. At the end of the year, the accountant looks at the expenditure and asks if I repaired or replaced the roof. I said replaced.

    Now here is where I learned the big lesson. The government in its infinite wisdom says if you replace rather than repair the roof the depreciation is 31.5 years!!! The roof will be wornout before that but that is how it works. Now here is where the I learned something. Did you ever notice that when a commercial building has its roof redone...they usually will do half, come back the next year and finish. Now I know why. These are repairs, not replacements. So they can expense them not depreciate them.

    Now before I buy an expensive item.... regardless of the cost....I call, find out the rules and make my decision. Too bad but that is the way it is now.

    On the truck issue, I am sole proprietor. I own my trucks and depreciate them fully. I think to do otherwise is crazy. What we usually do is to sec. 179 all the machinery and if I purchased a truck that year use up anything left over and depreciate the rest.
    I just love these tax things, they always bring out the best discussions.

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