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I just incorporated after 3-1/2 yrs of being a sole prop. My question is:After accumulating a lot of tools, ladders, scaffolding, all my office stuff (Computer, printer, desk, files, phone etc…) and my personal truck, what do I do with it now? Sell it all to the company? Rent it? Since it’s all in my garage, (Not the office stuff) can I rent the garage space to the company? What have you guys done that have switched to a corporation?
Thanks,
Dave
www.davebussard.com
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Dave, what ever is left as the value of the tools should be sold to the corporation. Your accountant should have been depreciating the larger tools and written over the cheaper ones the year they were bought. I think IRS allows those tools under $100 to be written off the same year as their purchase.
You should have discussed this with your acct. before today. I'd give him/her a call Tuesday and have the list ready including their cost, age and current used value. You can always post date the purchase to 12/30/00.
Then your acct. will set up a depreciation schedule for the larger purchases (sold to the corp. from the sole prop {you}) and for the corp. to depreciate after salvage value has been addressed.
The key is the total value of everything sold to the corp. and it's effect on your own adjusted income tax rate bracket. The acct. may suggest the sale take effect in 2001 instead of 2000 due to the above tax rate bracket.
The truck will either have to be sold and titled in the corp. name, or left in your name and you will then lease it to the corp. Again, to be decided by your acct. One more thing - make sure all of your insurances like liability and workers comp. is changed to the new corp. name - license also maybe depending your states requirements. Same for credit lines with vendors, etc.
*Thanks for the tips. I did take the Schedule C section 179 deduction on most of my tools, in the year they were purchased. So, do they have a value now? Guess it's about time I used an accountant. I have been doing everything myself for the past 3 years. I even incorporated online. Only took took 10 minutes and $315. But, I think I need some help now!Thanks,Davewww.davebussard.com
*Actually you don't actually "sell" them to the Sub S. What they become is Contributed Capital. They go on the books at today's fair market value. But, since they are already fully depreciated to you and it is your corporation you really need to see a qualified Tax Accountant to be sure what the answer is and what the financial consequences are to you and to the Sub S(which becomes you again when the Sub S flows to your personal return).There are some consequences of moving fully depreciated assets from your personal account to your Sub S and assigning them a current fair market value. What exactly is the best way to go for you can only be determined by running the numbers in your situation. Different specifics can change what is the best thing for you to do.
*It is hard to argue with the advice of seeing a tax accountant. We have a long running partnership and do our own taxes but we periodically consult with an accountant to update our knowledge and to pick his brain. Since you have already written off the value of the tools, selling them to the corporation will only result in income(and taxes) to you now because of the sale. I think that you should just use them and not consider them to have any financial value at all. We have tens of thousands of dollars in tools that were expensed in the year that they were purchased and have no value on our books, but we plan on using them for many more years. The only reason to carry a value on your books is to assure that you are spending enough to replace them as they age. This is clearly an advantage to you in managing your resources but has no tax advantage. Good luck and let us know what your accountant recommends.
*"Good luck and let us know what your accountant recommends."Pretty much what you have suggested. Any tools previously purchased, under the section 179 deduction, shouldn't be transferred to the corp. As far as the truck, keeping it in my personal name seems the way to go. If it were a company truck, I would need to keep track of personal use and that would be reflected as a benefit on my W2's, and be taxed. So to sum up, what's mine remains in my name, any new tools paid for by the company, will be company property.
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I just incorporated after 3-1/2 yrs of being a sole prop. My question is:After accumulating a lot of tools, ladders, scaffolding, all my office stuff (Computer, printer, desk, files, phone etc...) and my personal truck, what do I do with it now? Sell it all to the company? Rent it? Since it's all in my garage, (Not the office stuff) can I rent the garage space to the company? What have you guys done that have switched to a corporation?
Thanks,
Dave
http://www.davebussard.com