Doing my own taxes this year. I’m a single member LLC, filing jointly with my wife. I have no employees, no subs. Just me. I’m using Turbo Tax–and got the program for households with LLC.
I’m still a little confused about a couple things regarding expensing / deductions:
If I take the mileage deduction – .47$ a mile, or whatever it is right now – does that mean I can’t deduct any other vehicle expenses like repairs, new tires, wiper blades or whatever or can you deduct both? Insurance deductable, of course.
Also, on the issue of expensing vs. amortizing larger tools or items greater than $500. “Section 179 Election to Expense Certain Property etc..” Can you elect to expense such items in any year or are you only allowed to do that in your first/second year as my accountant did a couple years ago with items I’d purchased like : airless 525$ Truck rack 752$ Canopy 900$ Utility Trailer 1245$etc…
I read or hear of guys “buying the shiny new pickup” at the end of the year to offset income and diminish their tax burden, but are they expensing that purchase or just beginning to amortize it?
I’m not after every write-off I can possibly find, but I don’t want to be amortizing groups of smaller items every year–equipment less than 1,000$ like the 8″ jointer I bought this year…
Thank you.
Replies
Sure more qualified will jump in, but on the veh exp it is either or. If you do the mileage then you do not get actual expense and vice versa. Sect 179 allows a "rapid write off" or expensing of an asset in the year of purchase subject to the spelled out limitations.
Believe you still have to track the asset and "recapture" if you sell it before a certain amount of time. There are some down sides, potentially if you went out of business or sold the asset you would pay taxes on the selling price less basis (which would be zero if depreciated to nothing).
Generally an item expected to last more than a year is supposed to be depreciated rather than expensed unless using the 179 process. In this day and age a high dollar cordless set is a throw away since products keep improving and sets are cheaper than buying replacement batteries.
Have not looked lately but computers and cell phones were considered by the IRS to have some imaginary long life that varies from reality.
You may need to talk to a tax pro. I got Turbo Tax for Home and Business this year and have not gone through it. Have used the lesser versions for years.
Edited 1/28/2008 11:10 am ET by rasconc
Understood, thank you.
I plowed thru vehicle expense on the program b4 your response and all is clear.
thx.
After you are done, tell use what you think was added to the Business part. My guess is that the actually step by step asking for income, expense, etc are the same. But more vidoes the discuss deprciation and the like. But nothing that is not already in the basic program or readily available on the online IRS pubs.I am talking about the 1040, sch C, and the like.Some of the high end also include 1041 and help for parternship and corporate returns..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
I'm nearly done (in a weekend-could have been done in an hour or two if I'd used my QB program instead of abandoning it for the 'shoebox' method early in the year!
The business portion of QB home biz is worth it IMHO as there is a completely separate portion of the program, under its own 'business' heading from your personal portion. Very logical and helpful for me--especially in going back and forth to revisit portions of the return.
Kind of in the same boat as you. Solo, used to have an preparer do my taxes then realized she basically did the same that turbo tax did. So started using turbo tax, also like doing it at my own pace.
On the truck it is one or the other, mine is my personnel vehicle. On it I can itemize and account for every can of oil or go for the mileage which has all that built in. I go for miles, as she said it is a lot easier to keep track of miles then every can of oil. But if you have a truck that required several thousand in repairs because you have it done at the dealership you may want to rethink that, your yearly cost may be .57 a mile.
After 911 there was a capital equipment stimulus that was passed that let businesses deduct all at once the cost of a vehicle up to 50,000, I think, instead of amortizing it.
Weather a truck can be amortized depends if it is your personnel property and the business "borrows" it or if it is registered and owned by the business.
As far as tools go larger usually over 500.00 she amoritized, small one she just expensed out even small sanders and such so I just followed suit.
Not an accountant by any means and I file as Sole proprietorship not LLC. Turbo Tax is pretty good at walking you through such items. You can also call the help desk.
Wallyo
"As far as tools go larger usually over 500.00 she amoritized,"Stuff that last over a year is Capital equipment.But can either be expensed with a section 179 election or depreciated. The is an upper limit of the total of sec 179. I think that it might be $125,000 but it keepts changing so I am not sure.Unless it is a really big piece of equipment (telehandler, bobcat, etc) in the 5 figures that the typical craftsman or some contractor would be better off expensing it. But expensed capital equipment is listed on the section 179 form and then goes to a lump sum on sch C. The tax outcome is the same as treating it as supplies and expensing it htat way as you would do for smaller capitacl equipment..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
BillYour right, I should of added that I seldom have purchased something over 500.00 one of the few items was a computer and that is being depreciated. If I remember right, the Irs does think they last a long time. I was surpised when she expensed out my dust collector.Edited 1/28/2008 12:08 pm ET by wallyo
Edited 1/28/2008 12:10 pm ET by wallyo
"But expensed capital equipment is listed on the section 179 form and then goes to a lump sum on sch C. The tax outcome is the same as treating it as supplies and expensing it htat way as you would do for smaller capitacl equipment."
I thought you still had to maintain the schedule of depreciation including "expensed" 179 stuff.
"I thought you still had to maintain the schedule of depreciation including "expensed" 179 stuff."The first you depreciation you file a depreciation form, per item. That form is not filed each year. Nowever YOU need to keep a enough records to show how much has been depreciated and how much you still have left on it. TaxCut calls them depreciation worksheets.You don't file any more forms that that item the following years. The total of all depreciation (new items, the rememder years on old items) goes on the sch C.TaxCut keeps those worksheets from year to year. And it does not automatically remove them after the depreciation has been used up.I am assuming that TT is similar.The depreciation form does not have a schedule on it. But it shows the class and the amount depreciated the first year so that a schuled could be generated from that information.But if this is what you mean section 179 are listed on the depricated form and ut filed the first year.
As to your statement.
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Sort of lost you there at the end. What I am saying/asking is once you 179 and item is there not a listing you are supposed to maintain of equipment ( thought it was called a schedule-not be confused with a time line)? This would be for the disposition of an asset before and even after it's normal depreciation life.
For instance you 179 a 1000 asset that would normally be a 7 yr item. Sell it at 6 or seven yrs. Thought you had to show the recapture. Same thing for donating said asset (N/A on sched c) and claimed on itemized pers. ded. It's basis is zero so no deduction. What if you close out the business (which I will probably do in 3 or 4 yrs)?
I need to read more. will let you know what I see diff on the TT H&B version other than twice the cost. Sam's beat all out on price including the Army PX.
For instance you 179 a 1000 asset that would normally be a 7 yr item. Sell it at 6 or seven yrs. Thought you had to show the recapture.
You're correct. keep a deprecition schedule for future use. There may also be a recapture on some items that are taken out of service.
You get out of life what you put into it......minus taxes.
Marv
Edited 1/28/2008 2:05 pm by Marv
I am not 100% sure of the details.But I think that any capital goods that a business owns and disposes of, that could be taken out of service or traded or sold is suppose to be accmounted for.And any income is has to be adjusted for depreciation and taxes paid on any depreciation recapture and that is at 25%, I think. Then any excess profits would be long term capaital gains.I am not sure, but I suspect that if some thing was expensed then you would need to compute the allowed deprication (if it was less than the depreciation life) and use that in computing depreciation recaputure.So yes some kind of records that you can go back through would be helpful.But I have not had to go through that so I am not clear on the details.Also, for the class of business and equipment that we are talking about it often just "falls" off the screen. That is it is converted to personal usage and sold at a garage sale, traded off and the cost basis not passed on to the new item, etc.
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
taxes paid on any depreciation recapture and that is at 25%
Income recapture on equipment is at ordinary income rates. If you receive more that you paid for originally, you can get capital gain rates.
Income recapture on buildings is recaptured at 25%. If you recieve more gain than the depreciation you've taken the remainder is taxed at 15% capital gain rate.
Rates may differ according to your income level.You get out of life what you put into it......minus taxes.
Marv
FWIW: I got a notice from my accountant just a few weeks back that stated that the IRS will be looking closely at vehicle expenses by small companies this year for audit purposes.
They can't get your Goat if you don't tell them where it is hidden.
To my general understanding then, I would rather write off equipment like that 800$ jointer and it's ilk, rather than have so many items being depreciated to keep track of. But then if those items are sold, must pay back that write off?
Yeah, I'm kind of stewed about the accountant... she missed a LOT of stuff. I should have more closely pored through the returns but, jeez, what do you pay an acct for?
She missed my wife's federal student loan interest at least last year--and then our KID first year!
THanks,
Pat
You could get last years turbo tax e-bay is good for that and reenter for last year to see if an amended return is worth it, you can go back to 2004 untill this April. If she missed a lot may be worth a long Saturday.Wallyo
True that.
I'm inclined to leave it. After filing this year, it's off to the lender. Thinking about a 15-year refi on the house and as big a home equity line of credit I can muster to try to pick up a rental or flip house in the coming years.
Better to leave the income as it is than scrabble over 500$ bucks or whatever it might be. I dunno.
Just pleased to be more at the helm now I guess.
fill out this years taxs, then file amended return, it will be worth it.
you can file an amended return for last year to recapture items missed. it sounds like it would be worthwhile. she should do it for free. expense everything you possible can. continue depreciateing as she set up. if you file an amended return tell her to expense, do away with depreciating whereever possibe. lot simplier.
we had her do an amended return for '05 to include our daughter. She finally filed in July last year, after an extension, then tried to charge me for the amended return.
I contested, she lowered the fee, and this year the tax preparer is me.
I need to look back and see if she did not write off my wife's Fed student loan interest the last 2 years...
So your feeling, as well, is that it's better to expense everything you possibly can? I mean to a point of course, but say the 1,000$ tool?
expence it. you are allowed 125,000 this year, use it.
I am have not used TT for a number of years. Usually use TaxCut.
But look at the help. TC has both their own explaitions, the IRS instruction "books" for the form, and the Pubs. And you can go online to irs.gov and to the Pubs. They have booklets on Small Busines Expenses in general and I think that there is one specificaly on vechicle expenses.
The milage rate include gas, oil, insurance, repairs, depreciation. It does not include property taxes or interest on a loan.
Also you can deduct any direct expenses tht are for a specific trips such as tolls or parking fees.
""Section 179 Election to Expense Certain Property etc.." Can you elect to expense such items in any year or are you only allowed to do that in your first/second year as my accountant did a couple years ago with items I'd purchased like : airless 525$ Truck rack 752$ Canopy 900$ Utility Trailer 1245$etc..."
You can either expenses or depreciate capital equipment. I believe that you only only have that options the first year. If you elect depreication then you need to continue that over the depreciation period of that equipment or dispose of it.
Capital equipment is everything that has a lifetime of more than a year. So that would include things like a $25 hammer.
But for all practical purpose people use a larger dollar figure of $250, 500, 1000 or ??? and anything less than that is lumped togehter as supplies along with nails and lumber.
Also it is common to lump together like items that you are going to express. For example at different times you buy a cordless kit, a hammer drill, and a generator. You might put in one lump as power tools. If you depreciate them you need to look at which quarter they where bought in because of partial year depreciation and also what class they are in.
You might also want to get one of the "phone book" style tax books that are published each year such as Lassers. They are inexpensive and I find that they give a good overview and go a good job of describing some of the common, but more conufusing things, like vechicle expenses.
"I read or hear of guys "buying the shiny new pickup" at the end of the year to offset income and diminish their tax burden, but are they expensing that purchase or just beginning to amortize it?"
There are a number of special rules with this and I don't remember the details. I don't think that you can expense it, but in the past there where some special depriactio htat you could take some extra the first year. But there where also limitations on "luxuray vechicles". And there have been a bunch of insentives that have expired or changed.
BTW, you might want to follow what happens with the tax rebates. It also includes business tax incentives. I would not be surprised to see if something changes in 2008 to make it more advantage to buy a new vechicle this year.
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Rasconc covered it pretty well. Basically, to write off expenses vs just mileage you need to have a "dedicated" vehicle (though the IRS looks the other way at using it for occasional personal use). You keep track of all expenses and write off the actual expenses, including gas/oil, but you don't also get the mileage deduction.
There's some fine print that lets you take "actual expenses" vs the mileage deduction for your personal vehicle, useful if you have a 5MPG guzzler. But the fine print has even finer print as to when this is allowed, and it's basically just a gas allowance -- no depreciation, etc.
Note that this area is one where the IRS loves to catch cheats, and they do a lot of auditing. So you want to keep fastidious records.
SO, I have a 2000 toyota tundra, filled with tools, piled-on with material, and I drive it nearly every day for work.
THis is then a dedicated vehicle, despite having driven it out to the coast for a weekend last summer, or to the mts. 1x for new year's?
We drive our wagon for personal mostly.
I keep EVERY recpt!
I think you can count that as a "dedicated" vehicle, but you should read the fine print. (And then read the fine print for the fine print.) I don't do any vehicle deductions myself so I don't have up-to-date familiarity with the minutia of the rules.
If your view never changes you're following the wrong leader
Also note that you can't count mileage that you rack up simply going back and forth between home and a fixed place of employment. The IRS figures that you should simply get a home closer to your job.
If your view never changes you're following the wrong leader
Thanks all for chipping in.
Off to work! Not that taxes aren't work I guess.
Waters
Another reason for itemizing vehicles cost is you live in a state with high insurance premiums. The .47 cents or whatever it is is just the average operating costs in the nation you may be above average.
Wallyo
.47$ a mile,
For 2007, its 48.5 cents per mile. And that includes all auto expenses such as repairs, gas, oil, insurance etc. It doesn't include tolls.
Section 179 Election to Expense
The equipment you bot in prior years is set in stone. if there is any basis left, keep depreciating it as your accountant did till the basis is zero.
You can deduct all of your equipment bot in 2007 or depreciate it over 7 years (tools). You can also mix and match to get the deduction you want. Maximum amount of equipment that can be used against Sec 179 this year is $125k.
You get out of life what you put into it......minus taxes.
Marv
Edited 1/28/2008 12:25 pm by Marv
Vehicles you take mileage OR actual expenses plus depreciation. TT will walk you step-by-step through all of that when you enter the vehicle into the system.
Tools are 7-year depreciation items; take 1/2 year (cost/14) in the year of purchase no matter what the date, full year (cost/7) in subsequent years.
Below a certain value, you may elect to deduct the whole cost as an expense. Check with an accountant on that, there are limits and restrictions and, with some choices, once you select one method you may have to continue the same way every year thereafter.
With gas running $3+- a gallon (at 15+- MPG E150), last set of tires was $600, and vehicle insurance $1700 a year, there's no way less than 50 cents a mile covers my expenses. I keep every receipt and add in depreciation. If memory serves, I have to exclude the portion due to personal mileage, which is only a few hundred miles a year. (Wife is a CPA and I just give her the numbers).