WOW!! buy equipment today!
For example on a $175,000 piece of equipment you get to write off $145,000 the first year!..
Even if you finance it over a seven year period you can take $145,000 the first year and regular depreciation afterwards..
Limits,
gotta be new and go in service after May 5 2003
On a $100,000 piece of equipment you just saved $16,000 the first year alone in taxes!
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Replies
" On a $100,000 piece of equipment you just saved $16,000 the first year alone in taxes!"
If that is all that you saved in taxes you should not be in business. At least not one buying a $100,000 piece of equipment.
Probably closer to 44%.
But it still needs to be able to justify the expenses business wise.
I was going to say thats quite a tax rate, I think if you are paying 16% of your income to taxes you would not be able to handle the payments on the equipment.We become by effort primarily what we end up becoming
- Zig Ziglar
It depends,
If you run a business that needs expensive equipment, you may make a lot of money but because of all the tax breaks available you only pay 16% of it to the government..
Start a framing business today.. you'll need saws generators compressors nail guns ladders etc.. say with the trailer a total of $50,000.. add the forklift at $75,000 and a new truck at $55,000 (crew cab diesel 1 ton) you are in debt $180,000
now take your deductions, (20 percent of the total plus abonus 50 percent) your deductions total $136,000 now add your family deductions and you can earn oh maybe 150,000 before you pay your first dime in taxes..
Buy equipment on December 31 and still get to write off the full deduction!
whoopee, don't miss your chance!
" Start a framing business today.. you'll need saws generators compressors nail guns ladders etc.. say with the trailer a total of $50,000.. add the forklift at $75,000 and a new truck at $55,000 (crew cab diesel 1 ton) you are in debt $180,000
now take your deductions, (20 percent of the total plus abonus 50 percent) your deductions total $136,000 now add your family deductions and you can earn oh maybe 150,000 before you pay your first dime in taxes..
Buy equipment on December 31 and still get to write off the full deduction!"
One BIG problem with that scheme.
You need to have made a profit of $180,000 by Dec 31.
You can't take any more 179 deduction than the business has made in profit.
I see too many fincial statements to believe that is uncommon.. Right now in my folder is a company who signed a deal that will have a taxable income last year of over $250,000. Two working class guys who bet the farm on the housing boom a year ago and started their company from almost nothing.. They did a rough calculation and figured that buying the forklift saved them sixteen thousand dollars in taxes..
So far this month I've signed 4 deals and they all will earn comfortable livings in excess of six figures..
I meet tonight with a group of framers who together will earn close to $400,000 for their efforts since the spring of this year when they first rented from me..
Now there is little in that tax bill for the guy earning a wage, but that's what the party in power decided to do..
The deal is you get to take a bonus 50% deduction the first year then your normal 20 percent and your regular deuction after that.
I spoke hasty or incorrectly when I said it amounted to $16,000 dollar savings.. That was just the one contractor I sold to who benefited that much in cash savings..
He wanted a used piece of equipment but when he crunched the numbers buying a 4 year old used piece was net the same cost as a new piece..
The deal is you get to take a bonus 50% deduction the first year then your normal 20 percent and your regular deuction after that.
Here's how it really works. For new equipment purchased after May 5th, first you can take up to $100,000 in sec 179 depreciation. After subtracting this from your purchase price, you can take 50% sec 168 depreciation. After subtracting this from your basis, you can take the remaining basis over 5 or 7 years (depending on what you bought) using double declining balance method. clear as mud!
Purchase price $180,000 (June 2003)
sec 179 -100,000
Sec 168 -40,000
MACRS 7yr 6mo 5,714
Total deduction $145,714!
SWEET! How to turn a schedule C profit of $150,000 into a $4,286 profit....and the Democrats will love this,.....get earned income credit.
P.S. This equipment must be in use by end of year.
You get out of life what you put into it......minus taxes.
Marv
Edited 12/8/2003 4:41:11 PM ET by Marv
Edited 12/8/2003 5:16:13 PM ET by Marv
It's no wonder all the doctors and lawyers are running out to get hummers before year end.
according to our tax accountant, it also includes used equipment purchased since May 5th.
I realise that it says new but apparently there has been an interpitation of that that includes used.. At least that is what our tax guy tells us.. As usual check with your tax guy.. your mileage may vary, objects in the mirror are closer than they appear close cover before striking..
Edited 12/8/2003 7:36:54 PM ET by frenchy
Wow thats really great, this should really be a great incentive for small business to purchase and up grade equipment.
Should help jump start the already moving economy.
Based on the costs of most construction equipment you should have a great financial year ahead. I suspect your probably already writing your thank you note to the President and republican party for your possible windfalls.
Or could you be looking for a recipe for Minn. crow. lol
hope you sell the whole fleet on the lot and have to order more iron real soon, best of luck
Do you want to know the really sad part of the republican tax code?
They failed Americans
If they had added just one word in the code think of all the american jobs we would get..
but the code reads new equipment not American made new equipment!
Most of Caterpillar is made overseas, John Deere is looking for a way to go foriegn..
The Republicans are going to create the first jobless recovery in american history and in the end all we will have for it is a bunch of rusted Toyota's and Kumastos with a giant tax debt!!!!!
First - It's not the REPUBLICAN tax code, it's the AMERICAN tax code. The democrats got to vote on it too.
Second - Put a huge tax break in place that's ONLY for American goods, and you've got protectionism. That's a whole new battle in itself.The heart of the wise inclines to the right, but the heart of the fool to the left. [Ecclesiastes 10:2]
Yeh, the democrats got a chance to vote on it.. Just like in Cuba they can vote for whoever they want to run the country..
Frenchy,
sect. 179 has been around for a while, it is not something dreamed up last year. The limits go up regularly. Being able to write off equipment in the year you purchase it is a benifit for the economy because it encourages businesses to spend money to grow. Those purchases you are talking about are keeping people working. That tax write off is available to all, don't be upset people take advantage of the tax law, you take deductions right?We become by effort primarily what we end up becoming
- Zig Ziglar
Paul,
they just revised the tax code in May of this year.. Now you can take a bonus deduction in addition to your regular deduction..
Three things about the change worry me..
first there is no requirement to buy American.. I fail to see how buying a imported piece of equipment will help the American economy..
second there is no qualifier that the purchase add to the emplyment or in any way benefit those who will in the long run pay for the tax break
third reducing the governments income will worsen the deficet adding inflationary pressures to the economy. I've already been thru one stagflation that resulted the last time this appraoch was tried.. Don't want to again..
Frenchy,
Keep in mind that if you get to write off all of an expense this year, compared to 20% for five years. That is good this year but the next four years you pay on income and don't get to write off the 20% in each of those years. It's just a little bonus that comes out even in the end. It's not like business owners get free money.We become by effort primarily what we end up becoming
- Zig Ziglar
Paul-
That's a very good point. One that the press never brings up. Assume for a moment that a guy just starting out in business is not making much money but buys a lot of equipment. He writes it all off in the first year when his income is realtively low. In future years, when he is in a higher tax bracket, he is paying taxes through the nose. If he had more deductions (some of the depreciation of equipment) he maybe could have stayed out of the higher tax bracket.
I think the IRS wins when you look at the 179 tax deduction from this view point.
But then there's that time value of money thing.
You get out of life what you put into it......minus taxes.
Marv
Edited 12/12/2003 8:59:14 AM ET by Marv
Actually the "new guy" will be limited as you can't take more in sec 179 than in profit that they made.
One great use for sec 179 deductions are for items that get worn out or obsolete well before the 3-5-7 years that are allowed for normal depreciation.
But for items that don't and you sell them you need to recapture the excess depreciation and pay taxes on it.
I wonder how many of the people that are using this on SUV's and large pickups going to be hit with that in a couple of years.
not all but many owners can utilize the tax savings now and take another approach next year when the tax code is sure to once again change.. I'm certain that a sharp guy can advance payments and show them as profit to be offset this year and next year use a differant tax approach to minimise his tax burden then.
Consider it a get out of tax free card with no interest or penalties..
Several of my customers point out that they gain not just by not having any tax burden this year but by the added profits they will gain from the new equipment..
as usual your mileage may vary, objects in the mirror are closer than they seem, and check with a tax preparerfor advice about the suitablity of any advice given for free.. ;-)
"not all but many owners can utilize the tax savings now and take another approach next year when the tax code is sure to once again change.. I'm certain that a sharp guy can advance payments and show them as profit to be offset this year and next year use a differant tax approach to minimise his tax burden then.
Consider it a get out of tax free card with no interest or penalties.."
Not sure what you mean by that. If you write "it" off once you can't do it again, no matter what the law changes to. If you pay ahead on any payment this year to write it off you can't write it off the following year also. The tax code does not have some mystical way about it where people just don't pay taxes. Yes you can buy a tool and write it off this year but in my opinion you need to be careful about doing that on items you finance over more than a year because you end up paying the taxes on "income" that has to be paid out to cover the payments because you wrote them off the previous year.
"Several of my customers point out that they gain not just by not having any tax burden this year but by the added profits they will gain from the new equipment.."
I would like to point out that if they depreciated over five years they would still get the benifit of additional profits from the equipment (or burden of payments if they don't put it to use effectively). We become by effort primarily what we end up becoming
- Zig Ziglar
Paul is right. It's not always to your advantage to take the whole deduction in one year.
Always rember that the "up front" depreciation deductions are only available to you when the equipment is placed in service (not paid for). Actually you could start using your equipment in December (pay for it in January) and still take all the depreciation deductions.You get out of life what you put into it......minus taxes.
Marv
See Frenchy???????? This is what my wife was talking about. Now you cant increase your budget for travel since its in its track. We cant be spending more money to make a lot more money.
Tim Mooney
Tim,
I'm sorry but I don't understand.. could you please explain your last post?
I opologize. I just dont get a budget in sales thats all . To me this post proves it , but it doesnt matter . There will always be people on the left and the right I guess. :}
Tim Mooney
We may be closer on this than you'd imagine. it sure sounds like you've been talking to my wife ;-)
She thinks a budget is chiseled in stone and any deviation from it invalidates the whole thing..
I treat it more like a shotgun blast. as long as it hits the duck who cares where I aimed?
wait wait
i thought we all just got a big tax break this year?????
Better save the money cause the republican led congress is spending like mad (mega deficits). They will want the money back soon to pay the deficits off,