Steve Slatin on fri 5 sep 03
You're right; it was one of the big (and not well-publicized parts of
the 2001 round of changes in the tax law. It changed again this year.
The matter is clouded somewhat by the other changes in the 2003
tax law, which raised to 50% the "special first-year depreciation"
maximum. IIRC, 2002's changes put the "special first-year bonus
depreciation" at 30%. Don't confuse EITHER of these with 179 property
expensing. The two issues are different.
If you are a "small business owner" expensing is the ultimate in tax
relief -- but only for the year in which you incur the expense. Rather
than taking the cost of an equipment purchase as a depreciation over
time;
you take it all at once, in the first year.
The 2003 and onwards expensing maximum is $100,000. (I doubt that many
potters make that much gross, let alone net.) Up to that, under 2003
law it's ALL EXPENSIBLE. You can write off the total cost in the first
year. And for future years, it's keyed to inflation for adjustments, so
it'll effectively never be less significant (unless tax law changes
again).
-----Original Message-----
From: Clayart [mailto:CLAYART@LSV.CERAMICS.ORG] On Behalf Of David
Hendley
Sent: Friday, September 05, 2003 3:38 PM
To: CLAYART@LSV.CERAMICS.ORG
Subject: Re: Depreciating Equipment
I haven't bought any equipment in a while, but as I understand it
they have raised the $$$ limit of what can simply be written off
(rather than depreciated) to such a high limit that virtually anything
a studio potter might buy can be treated as an expense.
This is for stuff used to make pottery. There are special rules
for vehicles and computers and maybe other things.
I'm not an accountant, but have played one in a musical.
Hopefully Bonnie is reading and will give us a professional
answer.
David Hendley
david@farmpots.com
http://www.farmpots.com
----- Original Message -----
> Over how many years do we depreciate purchased
> equipment?
>
> For a start-up business, the IRS allows 100% deduction
> under sec 179 (I think?) in the year of start up. It
> is a nice, big, fat deduction, so long as you have
> income to offset.
________________________________________________________________________
______
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Mitch Kotula on fri 5 sep 03
Over how many years do we depreciate purchased
equipment?
For a start-up business, the IRS allows 100% deduction
under sec 179 (I think?) in the year of start up. It
is a nice, big, fat deduction, so long as you have
income to offset.
However, once in operation, equipment is depreciated
over its "useful years". I bought a pug mill and
kiln, so am curious as to how many useful years you
all are taking on your equipment. 3, 5 or more?
Mitch
=====
Mitch Kotula
Development Plus
PO Box 2076
Hamilton, MT 59840-4076
406-961-5136 (Home)
406-546-6980 (Cell)
__________________________________
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pdp1@EARTHLINK.NET on fri 5 sep 03
Hi Mitch,
Start several chaper somethingorother 'corporations'...one
buys the equipment ( and makes one's own receipts as needed
to reflect the desired figures, whether or not the
'equipment' actually exists is of litle consequence) and
leases it to the other corporation.
Or just acquire skill with 'paper', same difference...
The equipment gets writ-off variously, and depreciated as
may be...expenses for (lots of) maintenance and repairs and
so on...more 'receipts' and 'bills' to write off...
Once it is deprciated as far as it can go, or before then! -
one sells it at a loss of some sort ( whether it ever
existed or not) or has it professsionally remanufactured by
whatever smalll corporation as one owns or invents or makes
reciepts from, ( see above parenthstical) as does that sort
of thing, or is amenible to do it...
...whatever...
Like that...
It is all bullshit...
All day, every day, "24-7"
At least that is how 'real' Businesses do things...
That and more!
I am an Amateur...so I know of 'Business' largely by rumour
and observation...
Interesting tho'...!
Phil
Las Vegas
----- Original Message -----
From: "Mitch Kotula"
> Over how many years do we depreciate purchased
> equipment?
>
> For a start-up business, the IRS allows 100% deduction
> under sec 179 (I think?) in the year of start up. It
> is a nice, big, fat deduction, so long as you have
> income to offset.
>
> However, once in operation, equipment is depreciated
> over its "useful years". I bought a pug mill and
> kiln, so am curious as to how many useful years you
> all are taking on your equipment. 3, 5 or more?
>
> Mitch
David Hendley on fri 5 sep 03
I haven't bought any equipment in a while, but as I understand it
they have raised the $$$ limit of what can simply be written off
(rather than depreciated) to such a high limit that virtually anything
a studio potter might buy can be treated as an expense.
This is for stuff used to make pottery. There are special rules
for vehicles and computers and maybe other things.
I'm not an accountant, but have played one in a musical.
Hopefully Bonnie is reading and will give us a professional
answer.
David Hendley
david@farmpots.com
http://www.farmpots.com
----- Original Message -----
> Over how many years do we depreciate purchased
> equipment?
>
> For a start-up business, the IRS allows 100% deduction
> under sec 179 (I think?) in the year of start up. It
> is a nice, big, fat deduction, so long as you have
> income to offset.
Jeremy/Bonnie Hellman on sat 6 sep 03
Mitch, it doesn't matter how long the expensive equipment will really last,
unless it is clearly less than a year. Tax law says you depreciate it over 7
years, if it is ceramic equipment. If you take Section 179 or Bonus
Depreciation and then it goes permanently out of service or you sell it, you
will probably end up recapturing some of that depreciation. That's how it
works.
Knowing this ahead of time may save you (expensive) grief later.
BTW start-up expenses are very different than first year depreciation.
Start-up expenses (which are expenses incurred before you actually begin
doing business) are amortized over 60 months on a straight-line basis.
Bonnie
Bonnie Hellman, CPA in PA & CO
----- Original Message -----
From: "Mitch Kotula"
To:
Sent: Saturday, September 06, 2003 12:28 PM
Subject: Re: Depreciating Equipment
> Thanks for the input so far. With the audit process
> tightening and more and more people being outsourced
> into "working at home businesses" or into consulting,
> I don't recommend faking your business returns. Once
> audited and found "guilty" you are re-audited for 5
> years to ensure you are on the straight and narrow.
>
> Since I started my business in Montana there has been
> lots of expense and not much revenue. I recognize
> that I can write all of it off as start-up, but now
> that I am making a little profit, I think depreciating
> some of the equipment will give me deductions with
> which I can off-set future income.
>
> If I deduct now, I simply don't pay any tax, but next
> year I have few deductions other than operating costs
> and I will pay.
>
> With depreciation I moderate the blow.
>
> How long do kilns last? My guess is a nimimum of 3
> years and most likely 5 years until they require major
> rebuild. What's your guess?
>
> Pug Mills? I have a 1993 Bluebird 440 with vacuum and
> it is still cranking out the clay. Maybe 10 years is
> reasonable? Your guess?
>
> Wheels? Electrics seem to keep on turning with only
> replacing electrical brushes. How about you in
> colleges with lots of wheels...how long do they really
> last until you beg for budget so as to replace them?
>
> Clay mixers? Saw a Soldner ad that basically said
> they last forever. In my experience that is almost
> true. Your call?
>
> Presses? Got to do the maintenance and keep them
> "true", but how long do they last before write-off?
>
> Brushes, batts, ribs, sieves, etc. are expendables, so
> get written off each year.
>
> Mitch
>
>
> =====
> Mitch Kotula
> Development Plus
> PO Box 2076
> Hamilton, MT 59840-4076
> 406-961-5136 (Home)
> 406-546-6980 (Cell)
>
> __________________________________
> Do you Yahoo!?
> Yahoo! SiteBuilder - Free, easy-to-use web site design software
> http://sitebuilder.yahoo.com
>
>
____________________________________________________________________________
__
> Send postings to clayart@lsv.ceramics.org
>
> You may look at the archives for the list or change your subscription
> settings from http://www.ceramics.org/clayart/
>
> Moderator of the list is Mel Jacobson who may be reached at
melpots@pclink.com.
>
Jimmy Greene on sat 6 sep 03
Don't fall in love with writing everything off that you can in the first
year! This can be a sign of a lack of tax planning.
All in one year MIGHT be the answer, however if you expect to have
significant income in future years, taking advantage of depreciating
equipment over the full life of it might be better.
You'll end up saving on tax every year instead of just one.
Don't blame it all on the IRS,,,, CONGRESS made the laws.
Jimmy Greene
Jeremy/Bonnie Hellman on sat 6 sep 03
Hi Mitch in Montana,
You and I have exchanged private email on this subject, which is not as
simple as it might appear at first glance. Actually it's VERY simple-- most
ceramic equipment, wheels, kilns, pug mills, slab rollers are depreciated
over at least 7 years. You can go longer but not shorter. However there are
other options you might choose, depending on your total tax situation and
your best guess of your future total tax situation. Useful life is defined
by the IRS, not based on common sense as you and I might interpret it. Even
if your used pug mill or kiln that you've just acquired are not likely to
last more than 3 years, you still take a 7 year depreciation.
The first thing is that in order to have bonus depreciation or Section 179
depreciation, which give you a much faster write off, you must have
purchased "qualifying property", put in service, purchased new not used, and
not purchased from related parties. Also remember that not all states with a
state income tax allow bonus depreciation like your federal return. If you
take it on your federal return and can't take it on the state return, you'll
be keeping a double set of depreciation books, as required. There is a
dollar limit on Section 179 depreciation, and income limits.
If you merely "put old equipment into service" you will be depreciating it
over 7 years, unless it's a computer which has a shorter IRS life, or one of
a number of other special types of furniture and fixtures. Old equipment
put into service (as when you used to be a hobbyist and now started a
business) is depreciated over 7 years.
The ability to take Section 179 or Bonus Depreciation assumes you purchased
the equipment new from an unrelated seller. Related parties are defined by
the IRS and often include corporations that you control, or your spouse
controls, and sometimes even children or parents. Even though Phil P. on
clayart thinks there are ways around this, IMHO the legal ways are few and
far between.
When it comes time to prepare your return is when you'll make your
depreciation decisions.
My strong recommendation is that at least for the first year of a business
it is well worth while to pay a knowledgeable CPA familiar with artists to
prepare your business tax return, because you are making a number of
elections and decisions (including inventory, method of accounting for tax
purposes, and others) sometimes without even being aware you are making
them. Since I earn my living as a CPA, I feel that my clients get very good
value for the fees they pay me to prepare their returns.
The usual disclaimer applies to this email written to you: it is the best
advice I can give based on the very limited information you gave me. Often
decisions are different based on other income on the tax return. If this is
not your tax return's only income for the year, some decisions on
depreciation and other matters could be different.
Bonnie
Bonnie Hellman, CPA in PA & CO
> ----- Original Message -----
> From: "Mitch Kotula"
> To:
> Sent: Friday, September 05, 2003 1:07 PM
> Subject: Depreciating Equipment
>
>
> > Over how many years do we depreciate purchased
> > equipment?
> >
> > For a start-up business, the IRS allows 100% deduction
> > under sec 179 (I think?) in the year of start up. It
> > is a nice, big, fat deduction, so long as you have
> > income to offset.
> >
> > However, once in operation, equipment is depreciated
> > over its "useful years". I bought a pug mill and
> > kiln, so am curious as to how many useful years you
> > all are taking on your equipment. 3, 5 or more?
> >
> > Mitch
> >
> >
> > =====
> > Mitch Kotula
> > Development Plus
> > PO Box 2076
> > Hamilton, MT 59840-4076
> > 406-961-5136 (Home)
> > 406-546-6980 (Cell)
Mitch Kotula on sat 6 sep 03
Thanks for the input so far. With the audit process
tightening and more and more people being outsourced
into "working at home businesses" or into consulting,
I don't recommend faking your business returns. Once
audited and found "guilty" you are re-audited for 5
years to ensure you are on the straight and narrow.
Since I started my business in Montana there has been
lots of expense and not much revenue. I recognize
that I can write all of it off as start-up, but now
that I am making a little profit, I think depreciating
some of the equipment will give me deductions with
which I can off-set future income.
If I deduct now, I simply don't pay any tax, but next
year I have few deductions other than operating costs
and I will pay.
With depreciation I moderate the blow.
How long do kilns last? My guess is a nimimum of 3
years and most likely 5 years until they require major
rebuild. What's your guess?
Pug Mills? I have a 1993 Bluebird 440 with vacuum and
it is still cranking out the clay. Maybe 10 years is
reasonable? Your guess?
Wheels? Electrics seem to keep on turning with only
replacing electrical brushes. How about you in
colleges with lots of wheels...how long do they really
last until you beg for budget so as to replace them?
Clay mixers? Saw a Soldner ad that basically said
they last forever. In my experience that is almost
true. Your call?
Presses? Got to do the maintenance and keep them
"true", but how long do they last before write-off?
Brushes, batts, ribs, sieves, etc. are expendables, so
get written off each year.
Mitch
=====
Mitch Kotula
Development Plus
PO Box 2076
Hamilton, MT 59840-4076
406-961-5136 (Home)
406-546-6980 (Cell)
__________________________________
Do you Yahoo!?
Yahoo! SiteBuilder - Free, easy-to-use web site design software
http://sitebuilder.yahoo.com
Cindi Anderson on wed 17 sep 03
Section 179 is available to all businesses not just start ups. (All
businesses under a certain size that is.) It used to be you could expense
$25k per year, now it is $100k per year. You might choose to depreciate
instead. For example if you have low income (and low tax rate this year),
and will have higher income (and higher tax rates) in the future, it can be
better to depreciate over time. But personally I find it a pain to keep
track of depreciation, and I always take whatever savings I can in the
current year, so I use Section 179 for everything.
Cindi
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