Small business/depreciation requirements

[Bowhunter]

I planned to talk to my tax man about this but figured it would be cheaper to ask here. With the combined experience of the board it's likely someone knows.

I plan to upgrade tractors in a few years to a new CUT with MMM and FEL. I'll already have a rear blade, box blade, rotary cutter and other misc. My question is this: what are the requirements for being a small business? The thought process is if I formed a small business the business would purchase the tractor and do occasional loader work and brush hog work. This (in theory) would allow me to depreciate the value of the tractor (in theory again) saving me money.

I'll be the first to admit that I don't know much about how taxes work or regs on small businesses. Can anyone enlighten me? I know there has to be something wrong with my line of thinking, otherwise everyone would be doing it. /forums/images/graemlins/smile.gif

 

[Golfgar4]

Although I don't currently own a small business, I have done some research on this topic in the past. The best place to find out this information is through your state's web site. In Wisconsin, they have a terrific section devoted entirely to how to start and operate a small business, all of the information regarding regulations/licensing/taxes and even plans to help write a business plan.

Now if your state doesn't seem to have that kind of information readily available, then I would go directly to the Small Business Administration SBA and contact them.

Good luck! /forums/images/graemlins/smile.gif

 

[btolle]

I have been in business for myself for about 25 years.

Unless you are serious about going into business don't bother.

If you show a loss for 3 years in a row the IRS will re-classify your business as a hobby and you could be liable for the taxes (and of course interest) you didn't pay while it was a "business". Could even assess some penalties if they decide the "business" was a scam.

They have been down this road many times and are wise to it.

I have been through an IRS field audit, that is where they come to your office and start going through your file cabinets. Trust me, you don't want an IRS agent sitting in your office for 3 days asking questions and having to explain every penny you made and spent for a tax year.

On the brighter side, the only thing he found in 3 days was a math error so all I had to pay was the tax and interest, no penalties since he saw that it was an honest error on my part (don't subtract when you should add!).

Put some money into an IRA or other retirement fund instead. You will get a deduction now and pay taxes on it after you retire and are in a lower tax bracket.

Bill Tolle

 

[65hoss]

As a small business owner, I can answer this but its a double edged sword for you.

Yes, you can depreciate it only up to the point its work related. If you use it 75% of the time for personal and 25% for work, you can only depreciate 25% of it. If you plan to "set up" a business for depreciating it all the cost and other state and local taxes involved will probably cost you more than you want to spend.

Most county and/or state tax agencies tax a percentage of business assets and/or revenue. Thus a new tax just to depreciate the asset.

If you plan to do much more work than the occassional bushhog work, then its probably worth it.

Your cpa should have the knowledge for your area, but double check him with the state and local authorities on their part.

 

[Bowhunter]

Thanks guys you answered the questions I had. It looks like in my case it is not an option.

 

[kensfarm]

Now sure if this is inline for what you are asking..

NEW TAX ACT PROVISIONS HELP FARMERS

FARMERS MAY find some changes in how their federal income tax is figured. The new American Jobs Creation Act of 2004 includes changes in the Alternative Minimum Tax (AMT) calculation and extension of Section 179 depreciation. Farmers using income averaging are no longer subject to the AMT calculation regarding federal income tax. This increases the value of income averaging and potentially lowers federal tax for farmers.

The Section 179 depreciation allowance was increased from $25,000 to $100,000 in 2003 and applied to tax years 2003-05. The new law extends the allowance through 2007. This deduction is for new or used property placed into use by farmers. Tile is included in the qualifying property.

 

[dicker]

Hi

As a small business owner for 24 years, my first question to you would be "what type of business".
If you are seriously persuing business with your new purchase, then, by all means, you are entitled to that deduction. As others have correctly stated, your deduction will be judged on the percentage of personal vs. business.
If you are in the business of tax evasion, then that is a different story all together.
Good luck.

Richard

 

[rpeter]

Bet you could find a lot of farmers who could show a loss three years in a row. I guess they just do it as a hobby. There are exceptions to every rule. If you are growing timber you do not have to show a profit until you cut the timber. That could be twenty years down the road.

Then we can talk Sec. 179 expense rather than depreciation. It is a complex question and yes you do need to talk to an accountant!

 

[KiotiJohn]

You must be "in the pursuit of profit" in order to depreciate and deduct all your expenses. The nice thing about it is that you can deduct your losses from other earned income unless you incorporate. It's important that you keep every receipt for expenditures, the record keeping can be a nightmare.
In some cases, you can deduct a portion of your home expenses for a home office, but that can get sticky if you don't actually have clients that come there.
If you actually do it right, get licensed by your county, the state will want taxes on the equipment the business owns.
If you were really interested in doing a "tractor" business, it can be worth it, but know that there are a LOT of things you must do and do right so that you don't get on the wrong side of the law. John

 

[TOMLESCOEQUIP]

Don't forget the 2 trillion dollar "lloyds of london" liability insurance policy you'll need to cover those minor mishaps.............Like when a brushogged rock goes thru the passing school bus..............