tax issues

[randy41]

one of the requirements for a 179 deduction to be taken is a profit...you can use your w-2 from a completely different job when figuring your profit. you cant use other income such as interest and dividends to do that. If you file a joint return your spouses w-2 or business income can be included too. But her business loss is also included.
i do not advocate setting up a fictional situation to generate tax savings.
also be aware that depreciating or taking a 179 deduction reduces the basis of the asset and can trigger taxable income in the future if the asset is sold.
i cannot stress the importance of getting advice from a CPA who will also be doing your tax return and who charges you money.

 

[Dougster]

Dougster, what a dilemma. I've been reading up on internet about forms of business. Does this make sense form an LLC and for liability. LLC's can be filed like a sole p. for tax purposes as long as they have 1 owner and follow other criteria. At least that was the way I understood it. I will look at it again.

The problem for me is that I currently live in the People's Republic of Taxachusetts where you apparently need at least two people to start an LLC. One person... like me alone... I can't do it by myself.

So much for that "preferred" option... unless I want to burden my girlfriend or the old folks or one of my kids with a bunch of complicated tax return BS. Looks like I am stuck with the "S" corporation option for now.

Dougster

 

[randy41]

go read my post undder the starting a business thread doug

 

[Dougster]

one of the requirements for a 179 deduction to be taken is a profit...you can use your w-2 from a completely different job when figuring your profit. you can't use other income such as interest and dividends to do that. If you file a joint return your spouse's w-2 or business income can be included too. But her business loss is also included. I do not advocate setting up a fictional situation to generate tax savings. Also be aware that depreciating or taking a 179 deduction reduces the basis of the asset and can trigger taxable income in the future if the asset is sold. I cannot stress the importance of getting advice from a CPA who will also be doing your tax return and who charges you money.

Thanks Randy. I know you are right about getting a CPA involved as soon as possible, but when there isn't enough income right now to pay the mortgage, COBRA costs, truck loan et al... and still put food on the table... well, what can I say?

In regard to the "fictional situation"... I wouldn't describe it as a fictional situation at all. My intent is crystal clear and this will be a very real business. It has to be now that I am laid-off. I have no other options. If I made a mistake buying my truck and tractor a few weeks before opening my door... I am only trying to rectify that mistake. I can't imagine the IRS... as nasty as they might be... would not understand me taking steps to fix an inadvertant and unintentional error.

Then again, I still believe in the Easter Bunny!

Dougster

 

[California]

To survive, I will have to depreciate this expensive new equipment this year while I still have sufficient taxable income to offset.

You probably need to gather proof to show that you began organizing the business prior to making the purchases, if you wish to depreciate the full cost you paid. Otherwise you will probably be required to start depreciation from the lower value of used equipment, maybe its tradein value, on the day you place it in service.

I don't know if you can depreciate inherited tools since the cost to you was zero.

Get these points verified by a CPA, in fact verify all the advice you see in this thread, before you rely on it!

If I made a mistake buying my truck and tractor a few weeks before opening my door... I am only trying to rectify that mistake. I can't imagine the IRS... as nasty as they might be... would not understand me taking steps to fix an inadvertant and unintentional error.

Then again, I still believe in the Easter Bunny!

I used to audit time&materials costs claimed for Change Orders on huge public works contracts. The auditor has no authority to interpret intent, he simply verifies that claimed costs are allowable under the applicable standard. There is no Easter Bunny standard.

 

[Dougster]

You probably need to gather proof to show that you began organizing the business prior to making the purchases, if you wish to depreciate the full cost you paid.

That would be no problem at all. This layoff... and my business-based survival plans... have been in the works for over one year. I have plenty of records to prove it.

Otherwise you will probably be required to start depreciation from the lower value of used equipment, maybe its trade-in value, on the day you place it in service.

Holy Cow! Neither the truck nor the tractor have been used more than a few hours since purchased in late-August.

I don't know if you can depreciate inherited tools since the cost to you was zero.

Nothing I have was inherited. Not a single bolt. It was all purchased equipment.

There is no Easter Bunny standard.

Damnation! There goes another one of my core beliefs. Is nothing sacred anymore???

Dougster

 

[Alan L.]

Whew. There's alot of stuff on here. I won't attempt to address all of it.

If you inherit an asset, its basis is the value on the date of death. Say you inherit a piece of equpment worth $10,000 when grandpa died. You place the equipment into service when it is worth $8000. You can depreciate the business portion of the $8000 over several years, but you can't take a 179 deduction on it (deduct it all at once).

Randy made a good point in that, if you take 179 and write off all of the cost of an asset you would have to give back some of the tax savings later if you convert the asset back to personal use or sell it.

There are many areas of the tax law that are very simple and you don't need a CPA. If you operate any kind of business or rentals you really need one. There are many ways you can screw it up. You can get a free meeting, lay out your problems, get a little free advice, and a good idea what the work will cost.

There is no one "best" entity structure that everyone should use. It takes a careful study of your situation to advise you in this area, and it can be affected by the states you operate in.

I have been at it for 29 years and I have to do research every day. There is just too much to remember, and it changes almost every year.

 

[California]

I have been at it for 29 years and I have to do research every day. There is just too much to remember, and it changes almost every year.

Dougster and oceaneering, listen to Alan L. Go see a CPA.

You need that expertise on your side now, not after it is too late.

Tax law is complex and it doesn't follow the rules of logic. You can't just think through 'what would be the right thing to do' and expect to get by.

 

[DavesTractor]

.... Im healthy and I don't make enough money to donate. I'm not adopting and I havent given refuge to displaced hurricane victims. ....
Thanks, Oceaneering.

This may be off point, but it is from your post. Nobody ever makes enough to donate, there are always places to spend all your money, no matter how much you make, or how little. It's a great thing to give to charity, religious or non-religous. The odd thing is that the more generous a person is, the more he seems to make...not the other way around. From a tax standpoint, when you start itemizing, you can deduct even a real modest charitable contribution. I'd encourage it if you can. OK, off my soapbox now, and no offense meant to anyone that has seriously fallen on hard times and can't help others, that just means that others should be helping you at this time in your life. It's a give and take.

 

[Dougster]

Dougster and oceaneering, listen to Alan L. Go see a CPA. You need that expertise on your side now, not after it is too late. Tax law is complex and it doesn't follow the rules of logic. You can't just think through 'what would be the right thing to do' and expect to get by.

I know you guys are right. Believe me, I do. Once the shock of this lay-off wears off and the emotional/financial dust settles, I will be doing exactly that. I don't know how I will afford it, but I will. As you guys point out... I don't really have much choice. As good as I thought my pre-lay-off survival planning was, I may have messed up by buying so much expensive equipment before officially starting my business and not after. I felt pressured to buy while I was still officially employed and still able to float a loan. If there is a price to pay for that timing error, I have no one to blame but myself. But let's be clear here: This is going to be a very real attempt at running a very real business and I am not trying to cheat or scam anyone... especially not the IRS!

No matter how long you see a lay-off coming at you and you try to plan well for it, it is still a shock when the termination letter arrives. Ironically, based on recent company developments, I started to think I would last into the first quarter of next year. I didn't. And lucky me: My company just put into effect in August tough new (reduced) severance provisions... and guess who gets to be the first in the company to try them on for size.

Dougster