John Baymore on sat 18 oct 97
------------------
.......snip.......
How can I =22transfer=22 all the equipment I've purchased over the years, =
two
kilns, 3 wheels, tons of clay and chemicals, etc. so I can use them as
expenses to balance the sale of my work? Is there a publication I can
consult for advice?
.....clip.......
First of all.... I am not a tax advisor and have never even played one on
TV (g). So my comments below need to be taken as the advice of someone who
probably knows just enough to be dangerous (BG). At least I have learned
enough to preface this message with that caveat. Learned business
operation via Hard Knocks U. (it certainly is not taught in art schools).
You'll probably get advice here from actual pros in the financial and/or
tax field..... heed their comments more than mine.
In setting up your business to start with , you simply =22transfer the
assets=22 from personal to business. Sounds quite sophisticated but it is
merely a nothing paperwork issue. It is as simple as setting up a piece of
paper and listing the items, the current fair market value (since they are
considered =22used=22), the useful remaining life expectancy, the salvage =
value
at the end of useful life, and the way you will depreciate each individual
item. This paper becomes one piece of your permanant business records.
Depreciation takes into account the =22cost=22 of owning a piece of =
equipment.
For large long life stuff, you don't just deduct the entire value of the
piece in the year that you purchase it. For example, you buy a slab roller
for =241000. You estimate (and that is pretty much what it really is (g))
that it will last your uses for 10 years. So to have that slab roller in
use basically =22costs=22 you =24100 per year. You are allowed to deduct =
this
cost of doing business from your income on the Schedule C. Depreciation is
figured on the buildings you own (or portions of) used for business also.
This is oversimplified greatly, since you can opt for different rates of
depreciation over the useful life, and so on. To figure out how you will
depreciate.... you need some IRS information.
Once you have done this the first time, you need to file a depreciation and
amortization schedule along with your Schedule C (P+L from Business) each
year. Any new equipment then purchased for the business is added directly
to your asset list and depreiciation schedule every year, and some items
eventually are retired and the salvage value figured into your
calculations. There are specific classes specified by the IRS for certain
types of equipment, and the options are many for how you treat
depreciation. Depreciation tactics can become complicated if you really are
strategizing.... but for most potters with low business assets, the
simplest option is pretty much adequate, I think.
The IRS has publications on this and other aspects of running a small
business. Get them. You might also eventually figure out how to decipher
them (g). Also contact the SBA in your state and see when they offer their
seminars on setting up and running a small business. They are a great
resource=21=21=21=21=21
Go to the local bookstore and you'll find a plethora of books on running a
small business. Find one that seems to look =22right=22 to you, buy it, and
read it. Wendy Rosen has a good starter book on crafts as a business. Get
Larsen's Tax Guide. The American Craft Council has a good resource list on
this stuff.
In my opinion, if the paperwork issues and legal issues are not your =22cup
of tea=22, then hire an accountant / bookkeeper / tax prep person to help =
you
out. Let them do the busy work.... you make pots, tiles, sculpture, or
whatever. But I think it is very important that you make a really good
effort to truly understand the broad concepts involved as you set things up
(and continue to keep your finger on the pulse). This is YOUR money they
are handling, and to evaluate whether they are offering good business
advice for YOU, you have to know as much as possible to start with.
Running a business as a ceramic artist is really not so much different from
running any small business. (death and taxes and all that (g)) Talk to
your friends who own their own business for additional sources of advice.
Remember that if you end the business operation, the =22assets=22 and their
current book value will have to be dealt with. I understand that this can
get wierd on your personal taxes if you transfer them back to yourself.
Talk to your tax person about this.
BTW as a side note......... Another wierdness in this whole tax thing comes
up if you run your business out of your home. If you eventually sell your
home after having the business running there, you will be liable for
capital gains taxes on the money you get for the house that paid for the
portion of your home that was used for the business, even if you did not
claim the available deductions for the use of your home. The code says
specifically not just what you DID deduct, but what you were ENTITLED to
deduct but may not have taken=21=21=21 A real little sneaker hiding there =
in the
tangled web of tax code. Thank you, Congress.
Best,
......................john
PS: Don't forget to learn about quarterly estimated tax filings if you are
a sole proprietorship=21
John Baymore
River Bend Pottery
22 Riverbend Way
Wilton, NH 03086 USA
603-654-2752
JBaymore=40Compuserve.com
Jeremy/Bonnie Hellman on sun 19 oct 97
John-
Your business suggestions are good, and your concept of transfer and
depreciation is right, but your tax law knowledge is a bit out of date.
You would take the lower of cost or market (what it's worth today). The
IRS tells you what the "useful life" is. It's 7 years for equipment. This
is regardless of whether it is brand new and you expect it to last
forever, or whether it's on its last legs and could die tomorrow.
However if it is in such deplorable condition, the market value would
presumably be miniscule. And if the "basis" is so small, it would be
below a "materiality threshold", which is an accounting term. In other
words even if I buy a piece of equipment that will last longer than a
year, if the cost is relatively small, I will write it off in the year of
purchase. Each business can set its own materiality threshold, depending
on the size of the business. However, $100 is a pretty conservative
threshold, meaning that if it costs or has a basis of $100 or less, I
will not need to depreciate it.
Salvage value is not used in tax depreciation any more. The amount that
gets depreciated is determined by the IRS. You can use their tables,
which give you the percentages for each year or you can calculate double
declining balance. There is an option for straight line depreciation, but
in either case you only get half a year's depreciation in the first year.
If the equipment is purchased new, you can depreciate under code section
179, which allows you to write off up to $18,000 in 1997.
There is an IRS publication on depreciation, if you are interested. I
tell my clients that they probably can spend their time better than
learning tax depreciation. Most computerized income tax preparation
programs handle this very well. A business person's time is better spent
figuring out how to make money. How to produce a product efficiently that
will sell well at an adequate profit. How to sell that product. etc
BTW automobiles have an entirely separate set of rules for tax
depreciation.
The complexity of the tax code is one reason to hire a CPA who does a lot
of income tax work for small businesses, and who likes to work with small
business owners and who can do it at an affordable cost.
I'm not looking for the account, unless you are in the Pittsburgh, PA
area , because the CPA/business owner relationship works much better
when you can have some "face time".
Bonnie Hellman, CPA in Pittsburgh, PA and Ouray, CO
>----------------------------Original message----------------------------
>------------------
>......snip.......
>
>How can I "transfer" all the equipment I've purchased over the years, two
>kilns, 3 wheels, tons of clay and chemicals, etc. so I can use them as
>expenses to balance the sale of my work? Is there a publication I can
>consult for advice?
>
>....clip.......
>
>First of all.... I am not a tax advisor and have never even played one on
>TV (g). So my comments below need to be taken as the advice of someone who
>probably knows just enough to be dangerous (BG). At least I have learned
>enough to preface this message with that caveat. Learned business
>operation via Hard Knocks U. (it certainly is not taught in art schools).
>You'll probably get advice here from actual pros in the financial and/or
>tax field..... heed their comments more than mine.
>
>In setting up your business to start with , you simply "transfer the
>assets" from personal to business. Sounds quite sophisticated but it is
>merely a nothing paperwork issue. It is as simple as setting up a piece of
>paper and listing the items, the current fair market value (since they are
>considered "used"), the useful remaining life expectancy, the salvage value
>at the end of useful life, and the way you will depreciate each individual
>item. This paper becomes one piece of your permanant business records.
>
>Depreciation takes into account the "cost" of owning a piece of equipment.
>For large long life stuff, you don't just deduct the entire value of the
>piece in the year that you purchase it. For example, you buy a slab roller
>for $1000. You estimate (and that is pretty much what it really is (g))
>that it will last your uses for 10 years. So to have that slab roller in
>use basically "costs" you $100 per year. You are allowed to deduct this
>cost of doing business from your income on the Schedule C. Depreciation is
>figured on the buildings you own (or portions of) used for business also.
>This is oversimplified greatly, since you can opt for different rates of
>depreciation over the useful life, and so on. To figure out how you will
>depreciate.... you need some IRS information.
>Once you have done this the first time, you need to file a depreciation and
>amortization schedule along with your Schedule C (P+L from Business) each
>year. Any new equipment then purchased for the business is added directly
>to your asset list and depreiciation schedule every year, and some items
>eventually are retired and the salvage value figured into your
>calculations. There are specific classes specified by the IRS for certain
>types of equipment, and the options are many for how you treat
>depreciation. Depreciation tactics can become complicated if you really are
>strategizing.... but for most potters with low business assets, the
>simplest option is pretty much adequate, I think.
>
>The IRS has publications on this and other aspects of running a small
>business. Get them. You might also eventually figure out how to decipher
>them (g). Also contact the SBA in your state and see when they offer their
>seminars on setting up and running a small business. They are a great
>resource!!!!!
>
>Go to the local bookstore and you'll find a plethora of books on running a
>small business. Find one that seems to look "right" to you, buy it, and
>read it. Wendy Rosen has a good starter book on crafts as a business. Get
>Larsen's Tax Guide. The American Craft Council has a good resource list on
>this stuff.
>
>In my opinion, if the paperwork issues and legal issues are not your "cup
>of tea", then hire an accountant / bookkeeper / tax prep person to help you
>out. Let them do the busy work.... you make pots, tiles, sculpture, or
>whatever. But I think it is very important that you make a really good
>effort to truly understand the broad concepts involved as you set things up
>(and continue to keep your finger on the pulse). This is YOUR money they
>are handling, and to evaluate whether they are offering good business
>advice for YOU, you have to know as much as possible to start with.
>
>Running a business as a ceramic artist is really not so much different from
>running any small business. (death and taxes and all that (g)) Talk to
>your friends who own their own business for additional sources of advice.
>
>Remember that if you end the business operation, the "assets" and their
>current book value will have to be dealt with. I understand that this can
>get wierd on your personal taxes if you transfer them back to yourself.
>Talk to your tax person about this.
>
>BTW as a side note......... Another wierdness in this whole tax thing comes
>up if you run your business out of your home. If you eventually sell your
>home after having the business running there, you will be liable for
>capital gains taxes on the money you get for the house that paid for the
>portion of your home that was used for the business, even if you did not
>claim the available deductions for the use of your home. The code says
>specifically not just what you DID deduct, but what you were ENTITLED to
>deduct but may not have taken!!! A real little sneaker hiding there in the
>tangled web of tax code. Thank you, Congress.
>
>
>Best,
>
>.....................john
>
>
>PS: Don't forget to learn about quarterly estimated tax filings if you are
>a sole proprietorship!
>
>
>John Baymore
>River Bend Pottery
>22 Riverbend Way
>Wilton, NH 03086 USA
>
>603-654-2752
>JBaymore@Compuserve.com
"Outside a dog, a book is a man's best friend. Inside a dog, it's too
dark to read" Groucho Marx
" " Harpo Marx
"Time flies like an arrow. Fruit flies like an avocado" Att. to GM
Jane Woodside on tue 21 oct 97
Bonnie's right (as a general rule) on the lawyer/CPA dichotomy--as a business
attorney (pre-pottery) I would usually recommend that my clients see a CPA
about routine tax matters. For a complex strategy or IRS dispute with many
dollars at stake, an attorney might be the right call but otherwise, CPA's do
this stuff more often and they can do a good job much more cost effectively.
In my experience CPA's do keep up with the tax law and with its creative
application--so I'd hire the CPA rather than a tax attorney. I'm sure there
are exceptions to this generality but what else is new?
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