New tax laws

[snowman]

Note too that they just modified what equipment qualifies for the $100,000 - SUV's over 6,000 lbs are now limited to $25,000, so it only applies to "real" equipment (such as ag equip)

 

[ejb]

>>they could deduct 100% of the investment up to $100,000 and then deduct it again as depreciation because of the new tax laws. Now that sounds too good to be true. What's the catch? If I buy $50,000 worth of haying equipment uncle sam is gonna send me a big fat check for all of the tax I have paid in at my auto worker job?

NO and NO is the answer. You cannot deduct the $100K and then deduct it again as depreciation. It is too good to be true, and thus it is NOT true.

Also, section 179 depreciation, which is what you are talking about, can only be used upto the point at which it causes your BUSINESS profit to become a loss.

I.e. if you own a big farm, and had $150K profit (not income), you could deduct the entire $100K and reduce your taxable income to $50K this year...you CANNOT turn a $1K profit into a $99K LOSS by deducting the $100K tractor...you could depreciate it still and turn the $1K profit into about a $17K loss, but that is the same as it has always been...

In your case, you cannot offset your $100K W2 income with a $100K equipment purchase. but you could still buy it and use the regular depreciation and save yourself some money.

Consult a tax professional...I am not one, nor do I play one on TV /forums/images/graemlins/smile.gif

 

[Phred]

I think frank expressed it best.

If you want to read up in order to be able to ask smart questions this link will tell you more than you probably want to know.

http://www.irs.gov/formspubs/page/0,,id=11370,00.html

Fred

 

[Alan L.]

Sorry Junkman, but 90% of IRS agents have a poor grasp of the more complex issues of the tax law. They are a good source for IRS procedures, but most don't have a clue when it comes to complex tax issues. They typically are not even accountants and certainly not CPAs. They usually have a difficult time understanding accounting at all.

It doesn't take a lot of training to become an agent, and the knowledge required to become an enrolled agent is extremely basic, compared to the complexities that CPAs and tax attorneys have to deal with.

This is not to say none of them know anything, but they really aren't required to know much, although I have run into a few that had become fairly knowledgable.

I am a little biased, but I would recommend that you use a CPA as opposed to an enrolled agent or former IRS agent. Most of them have a much stronger background in taxation.

 

[Alan L.]

Cowboydoc, unfortunately you can't deduct principal payments on the equipment, only the interest. The maximum deduction under Section 179 is $100K, but it phases out when you buy as much as $400K of equipment. Thus, the big corps don't get this deduction.

 

[Alan L.]

snowman, that $25K limit could happen, but so far its only the senate finance committee that has passed it. It still has to go to full senate.

 

[OkeeDon]

A recent study stated that the IRS gives the right answer to taxpayer questions only about 40% of the time. The IRS, all in a huff, repsonded, "That isn't true! We get it right almost 65% of the time!". Sorry, IRS. 65% is a failing grade anywhere...

(The precise numbers may be off a percent or two - I'm recalling this from memory. But, the gist is correct).

 

[zuiko]

Just be sure you are running the farm as a business and can prove that to an IRS auditor if you get audited before you try to offset any of your job income with farm losses. I will be filing farm tax returns but I'll only deduct enough expenses to cover any farm related earnings. I won't depreciate any equipment. I don't want any trouble with the IRS. I didn't pay the sales tax on my tractor though because the sales tax restrictions here are more liberal.