Equipment depreciation guidelines.

[woodmills1]

the way i understand it is since you have already in effect depreciated the first tractor 100% you would have to go into the depreciation tables and find out what % you would have been allowed, up to the year you traded the tractor. and use that to find the dollar amount that you would not yet have depreciated. that unallowed amount would then be subtracted from the cost of the new tractor to find its depreciatable value. i do not know if there is a penalty for this. i also believe that if you did not trade or traded down the difference would be reported as income, since the unallowed amount was used to reduce income originally. I have used the 179 for all of my major equipment purchases, like planers, dump, dozer, mill, tractor and processor, but have yet to sell or trade before the class life is up. the problem could be more complicated than i have sugested because of the difference between the trade in value and the depreciated value. ordinarilly if you sell equipment you must report it as income so i think above when i said the cost of the new tractor it should probably be the difference between the cost of the new and the trade in value of the old.

 

[cowboydoc]

Unaka,
Yes I got your email. Sorry our all in one at the office went bye bye today. I had to go get a new one today after work and spent the last few hours trying to hook it up. I should have it going tomorrow. I'm not the computer ace that Harv is.

As far as cattle go yes I sell quite a few privately. What I do is sell them on the hoof. I have several people that buy from me that way. The way I do it is when they are ready to go I will load them and go weigh them. Then I take them to the butcher for them and they pick them up there. I just have the different people make arrangements as to what they want the meat cut like. When they pick up their meat they pay the butcher for his work and give him my money for the cow. Works out good for both of us. I keep him busy and he handles the money for me before the beef is picked up.

My cows I finish out on a corn and protein supplement with alfalfa. I'll bring them up gradually to full feed. Meaning they have all the corn and protein they can eat. As soon as they're finished out is when I take them to the butcher. It's not a whole lot more than what the sale barn pays but I save commissions and a little more. I usually will charge 10% above what the avg. steer or heifer for that weight was.

Look for that bp tomorrow and let me know if I can help you anymore on the cattle deal.

 

[Harv]

<font color=blue>I'm not the computer ace that Harv is.</font color=blue>

Seems like I've got a lot of people fooled.

Cool. /w3tcompact/icons/cool.gif

 

[unaka]

Woodmills,

I see the logic, now, regarding the taxes. From what you've said, it sounds like I won't really be penalized per say, especially since I had to put more money down and upgraded rather than down graded tractors. However, I need to read up some more on the regs because, as you alluded, there are some complications.

Cowboy Doc,

Thanks for your reply. I look forward to receiving the bp. DFB pointed me to some obscure, but excellent old posts last night regarding cattle, marketing, slaughtering, etc. Thanks DFB, I'd have never found those on my own.

I was telling a friend this morning about image viewing, editing, etc. He couldn't believe I learned all that from a TRACTOR WEBSITE!!

Keep up the good work, folks, and thanks Muhammad for creating such a professional, and family friendly forum. /w3tcompact/icons/clever.gif

Unaka

 

[Hillbilly]

Richard,
What kind of cattle do you raise,and how many?I stay busy enough with 93 acres,how do you manage to keep up with 3 places and run your medical practice at the same time?How many horses and what kind?I could get a lot more done if it were not for tractorbynet./w3tcompact/icons/smile.gif

 

[cowboydoc]

Hi there Hillbilly,
It takes ALL my time pretty much. If I'm not here at the office I'm out there. I do have a retired farmer that works for me so that helps alot. I'm down to 156 head of cattle right now and mostly have crosses. Herefords and black baldys for the most part. As far as the horses go I've got about 30 of them. Most are broodmares, yearlings, etc. I've got 13 broomares, my two studs, and then our roping horses. It's a full-time job and then some but we all help out and it works good. I complain about all the work sometimes but i really wouldn't have it any other way! I raise mostly quarter horses. You can see some of them at the new website. www.4lranch.net. I don't have all the mares up yet but should soon.

 

[Wingnut]

Richard,
since you've investigated the 179 in depth ... maybe you can answer this before I finally get home at midnight and can start digging into the code.
I bought a laptop to use strictly fo rbusiness and it falls under the 179 definition ... except fo rone thing ... I thought I'd bought it in 2001 but after digging through my records I discovered it was actually in 2000.
I've seen several posts that say "purchased in the current year" and was wondering whether that's interpretation or hardcoded in the definition?

thanks

peter (who is always happy to keep his hard earned dollars out of the hands of the porkbarrellers in Dolt Country)

 

[cowboydoc]

Wingnut,
Boy now that one I'm not sure of. I've never had that come up. I always take all my deductions in the current year. Sorry I can't help more.

 

[PaulT]

ONe thing you can do is "sell" it to yourself. I have transferred personally owned assets to my company in the past, which constitutes "purchasing in the current year" from the point of view of the company. My accountant validated this approach, as he keeps my assets in a computer program that calculates my depreciation each year. To be exact, you would depreciate the value of the computer "used" during 2000 right after you bought it, and transfer the asset at that slightly depreciated amount.

Of course, you could always file an amended return for 2000 and claim it in the year that you bought it! The IRS allows amending your returns for several years, though I'm not sure how many. You can also use any active losses incurred in the current tax year to amend prior years and actually get retroactive refunds! My accountant got me 3 grand that way after the first year of running my small business (at a startup loss), right after several years of large paychecks and no mortgage (i.e. tax shelter)/w3tcompact/icons/smile.gif woohoo!

 

[Wingnut]

Unfortunately, Richard ... I'm slowly learning the difference between the Canadian and American tax codes. Until Bird mentioned the deduction for the computer he took to work, I'd never ever really thought about the laptop I bought ... I just decided it would enable me to work during all those wasted hours on business trips and enable me to easily move project data between my office workstation and home workstation, etc. I hadn't thought about tax implications when I bought it .. so never worried about it ... but this whole "179" discussion gave me an idea to retrieve a few dollars from the "failed social experimentation fund".
I guess, rather than flag my return for a possible audit ... I'll just forgo this deduction ... but keep it in mind for the next time I make a work-related purchase.
Thanks for the input.

(Drooping)Wingnut

 

[Wingnut]

thought of that, Paul ... and that's what I would have done in Canada. But, in this case, the business use is for work I'm doing fo rmy employer. It wasn't required (or even supported) by my employer ... I just wanted the ability to use the travelling hours for working on my projects instead of watching airline-butchered movies.
Although an audit would be no big deal ... nothing fo rthem to find ... I hate the waste of time ... one experience in Canada over business deductions was enough. I'll just write this one off as another missed opportunity and keep it in mind for the next time.
thanks
pete

 

[Anonymous Poster]

hi all
I was doing some research for my first tractor purchase and happened on this thread. This is such a great website I thought I'd try to help. I'm a non-practicing CPA (still got my license but too busy with programming & websites to stay on top of everything) but I can tell you that the Section 179 deduction has been around quite awhile. There are a number of limitations on it including the $24,000 limitation but more importantly from what I've seen on this thread, there is a Business Income Limit. That means that you cannot expense more than your taxable business income. That also means that it cannot be used to create a loss.

If you've already filed your taxes that way you need to get an amended return in ASAP. The IRS computers will eventually pick this up and you'll be tagged for interest and (possibly) penalties from the time the return is due or filed until the time you pay the difference. Believe me, it always comes as a rude surprise when you get that letter from them!

If part (or all) of your $24,000 limit is disallowed you can carry it over to the next year.

Good luck guys. Let me leave you with an opinion from experience as a CPA. You would be better off saying unflattering things about a mobsters wife than messing with the IRS. When they come and say they want x amount of money you either a) pay up, b) spend large quantities of money and time trying to bargain with them or defend your case, or c) lose your business and any assets they decide are worth attaching.

Check with a CPA or the IRS before you turn in anything that sounds "too good to be true"

 

[cowboydoc]

Carey,
That only applies if your business is a hobby and not a true business. If your "other" business is a true business and you can prove that it is a true business then you can invest other taxable money into this business. For example if I make x amout of dollars working for XYZ Corp. I can use that money to start-up another business, say ABC Corp. I can take a loss on ABC Corp and reduce my taxable income from XYZ Corp. due to the loss. So yes IF you have a legitimate business you can use income from another business to start a different business and claim all of the loss. If you are a "hobby" business then no you are right you can only claim up to the amount that your business actually earned that you bought the asset for.

 

[MikePA]

TurboTax has what appears to be very comprehensive explanation of Section 179 Deductions. It discusses Material Participation, Significant Participation, Active Losses, Passive Losses, etc. and TT keeps track of all of this. I would have attached IRS Pub 946 to this post but the pdf file is just a little too big at 456K /w3tcompact/icons/smile.gif, so here's the <A target="_blank" HREF=http://www.irs.gov/pub/irs-pdf/p946.pdf>link.</A>

 

[cowboydoc]

On page 17 of what Mike posted it says that the limit of your deduction is limited to the TOTAL net income and losses for ALL trades and businesses you actively conducted throughout the year. Income includes section 1231 gains or losses, interest from working capital on your business, and wages, salaries, or tips as an employee.

 

[Wingnut]

What I didn't see you saying, Carey, is that it would be an automatic flag to the IRS to audit me if I purchased a laptop to use for business. According to Turbotax (with my lack of deductions, a standard 1040 is overkill - so I did it on the web) my laptop was ok as long as I purchased it and used it in support of my job. It didn't specify that it would only apply if my employer required it.

 

[Wingnut]

What I didn't see you saying, Carey, is that it would be an automatic flag to the IRS to audit me if I purchased a laptop to use for business. According to Turbotax (with my lack of deductions, a standard 1040 is overkill - so I did it on the web) my laptop was ok as long as I purchased it and used it in support of my job. It didn't specify that it would only apply if my employer required it.
Wrong?

wingnut (but not nuts enough to ignore a legal and logical deduction)

 

[Wingnut]

Richard,
yes, but can I keep writing my $20,000 tractor off until I run out of deduction if I write off only what I manage to sell the mini's for (assuming SHE-who-must-be-obeyed ever agrees to seel one)?

 

[PaulT]

Wingnut,

There is another category of valid expenses, although they are much less attractive than the section 179. Unreimbursed business expenses - things like briefcases, expensive pens, laptop computers, if they are purchased ot help you do your job, and you couldn't convince your employer to pay for them, can be deducted TO THE EXTENT THAT THEY EXCEED 2% of your AGI (or was it taxable income).

 

[Wingnut]

ouch ... that would have to be a pretty expensive laptop .. or pen ... to exceed 2% ...