Eqipment repair tax deductions.

[Dickjr.]

There may not be an answer to this question but I thought I would ask. Just say you spent 10K $ on repairs , What % would you get as a refund on your taxes? I had a guy try to tell me 90% , I can't see that , my guess would be 25 to 35%. Figuring in that the business made money but it was spent back out in repairs and parts.

 

[Birken Vogt]

If you are a sole prop. then basically it reduces your income by the amount of the repairs. So if you spend $10k it will look like you made $10k less money. If you are in the 15% tax bracket then your taxes would be $1500 lower.

So another way of looking at it would be that the IRS pays for 15% and you pay 85%.

The short answer is to save your money, don't spend it to get a deduction. Although if you have fat years and lean years sometimes it can pay to do big repairs in the fat years to make them not so fat.

 

[Delmer]

Agree. That's my understanding.

Unless the repairs would be considered "improvements" and capitalized and depreciated on your taxes. It sounds like that would almost never be enforced against a small contractor, but it's worth looking into if that 10K was all one item and a significant part of your year's net.

 

[John C.]

I've seen a few people capitalize repairs or repair parts and depreciate the cost over a few years. It makes for a mess of paperwork that accountants just love. The only time I've seen that work is when those costs are capitalized into a machine purchase. I think Birken states the right way to play the game.

 

[Dickjr.]

Birken , what your saying makes sense to me , I actually had about 30 grand in repairs this year. I am a small 2 man , 3 machine business. These repairs were not done for the sake of getting a deduction. I have other costs as well , smalls at the parts stores and such. I actually would have had a good year until this happens. One guy told me that since one machine was down that I could list a lose of income as well. Out of the 30 I had to borrow 8 which I hated to but I was getting cleaned out. I have a decent tax guy , the last one I had seemed like he worked for the irs and not me. I do not want anymore than what I deserve , but I want all I can get and be fair. I usually get a refund due to the fact I have 3 kids plus costs of operation. The reason I asked , I have been told so many different things. I am hoping I can get enough return to cover some of the 8 grand I borrowed for the repairs.

 

[Delmer]

One guy told me that since one machine was down that I could list a lose of income as well.

I can't see that for a sole proprietor. Maybe for a larger corporation that has lots of stuff going on, depreciation, contracts etc. The lost income comes right off the top of your gross income, because it's not THERE. It sounds like you've got a tax guy you like, but you still should understand the basics of where you sit in the tax code. If you're usually in the Earned Income Tax Credit territory, then spreading some of those repairs (payments) to this year might HELP to keep you in the sweet spot in the middle of the range. If you're in the 25% bracket and your refund is coming from the huge estimated tax payments you sent in every three months, then expensing the repairs this year makes sense.

 

[Dickjr.]

Thanks for these replies , I can't get a straight answer out of my tax guy he says he will look at it. I am usually in the earned tax credit territory. I never understood that either. The guy that has done my tax work since I first filed 28 years ago passed away and his business was bought , then sold again and I was sold with it so to speak. I can say this and its happened to all of us , last year was rough on me. I have work to do so that is promising. I have been at this since 02 and survived the terrible years. One day I'd like to be able to save some money.

 

[Hobbytime]

There may not be an answer to this question but I thought I would ask. Just say you spent 10K $ on repairs , What % would you get as a refund on your taxes? I had a guy try to tell me 90% , I can't see that , my guess would be 25 to 35%. Figuring in that the business made money but it was spent back out in repairs and parts.

are you in business with a real company or just do it for a side gig? if in business, any expenses comes off your gross and reduces what amount you pay taxes on, did you pay for the repairs with a company check or the funds came from else where, all these details come into play...but for a general answer, what ever your tax bracket is , you will save that amount.....any accountant that cant answer that needs to be kicked to the curb and a good accountant hired...

 

[Nige]

I have no idea how it works in the US, but here if you were running a registered business, no matter how small, you're taxed on the profit you make. Profit = Income - Expenditure. Repair costs (parts and/or labor) are an expenditure. AFAIK a business that makes a loss in any particular year due to unforeseen/extraordinary expenditure can carry over the loss to the following tax year and set it against any profit made that year.

I guess a lot depends if you are filing taxes as an individual or filing taxes as a company.

 

[CM1995]

If you are a sole prop. then basically it reduces your income by the amount of the repairs. So if you spend $10k it will look like you made $10k less money. If you are in the 15% tax bracket then your taxes would be $1500 lower.

So another way of looking at it would be that the IRS pays for 15% and you pay 85%.

The short answer is to save your money, don't spend it to get a deduction. Although if you have fat years and lean years sometimes it can pay to do big repairs in the fat years to make them not so fat.

Nailed it for any business on a cash basis of accounting. Dickjr you just got $10K added to the "expense" column which offsets the "income" column.

Larger corp's usually run accrual accounting which changes the business model some what.

 

[Delmer]

Even if this is a side gig, then if you turn a profit in 3 years out of 5 (and/or some other details...) then you treat it as a business and your expenses are deducted from your gross income. The IRS cracks down on doctors taking business losses from their horse farms, I don't think that's the case here.

The only difference is the earned income tax credit, which is a US credit to encourage people to get off welfare and work, basically it pays your income taxes (and WAY more in some cases) for lower income working people. The amount actually goes UP with INCOME going UP at the very bottom of the scale, which is why you want to be at least in the MIDDLE of the range. Especially if you are at risk of being out of the range next year with more profit.

Farmers and Fisherman are given ways to even out income so they're not hit like this. As a dirt contractor, you have to do the same thing within the rules allowed you. That might be waiting to pay for a portion of the repairs until this year, or capitalizing the repairs and spreading the depreciation out (treating the repairs like improvements, or a purchase of a new machine). Depreciation stinks, but it might be worth it in this case as a last resort.

You really need to know your tax situation and how it affects your REAL bottom line, how much you get to keep. I promise that Barry, Donald, Bill and Hillary know EXACTLY what they are doing to minimize their taxes, and probably pay a much lower percentage of their income in taxes than you and I do.

Edit: just saw CM's post, exactly, accrual accounting changes things, and I think there are lots more ways that larger, more complicated corp's have to minimize income, take advantage of credits, etc etc.

 

[Dickjr.]

Delmer , you and others that have posted here have answered a lot of questions already. When I ask my tax guy he really never explains why we do this or that. I am full time business and file as a sole proprietor and have a farm as well. I know if things happen this year like they did in 16 I can't do that. And I have a customer that owes me 16 g from the 5th of December. I have paid all the materials on his tab. Makes me really want to get after it you know.

 

[digger242j]

Just an anecdote on the subject--I had an old friend who bought a wheel loader, used. He'd still have to depreciate the machine, but tires are a repair expense, which can be deducted in full in the same year. So, he paid for the tires separately...

 

[Nige]

Just an anecdote on the subject--I had an old friend who bought a wheel loader, used. He'd still have to depreciate the machine, but tires are a repair expense, which can be deducted in full in the same year. So, he paid for the tires separately...

That's why even on a new machine, well Cat machines anyway, the tyres are considered to be "an attachment" and are priced separately to the machine itself - along with all the other attachments. Each one is listed separately over the top of the base machine price.......

 

[Dickjr.]

This is a fulltime business. I think I have a better understanding as to how this works now , maybe not fully but at least I have an idea. We all want what's coming to us and I was just trying to ensure that's what was going to happen for me. Its seems like this year if my gross sales were 200K , It cost me 220K to get there. Granted lots of terrible other things could have happened such as lost of health or health in my family , thank God that's not the case. I tend to worry about things that I can't control as well. Seems like every year it ends up being fine. I guess we shall see in a month and I will let everyone know how it plays out. Delmer , I appreciate you taking time to talk to me over the phone , it cleared some things up as well. Gonna have to sit down with my guy and talk a little to see where I need to go there.

 

[Nige]

The way I see it based on those numbers your profit for the year (2016 I assume?) was negative 20k......
I know you had some major mechanical issues during the year, you posted quite a few of them on HEF.
If I was in your shoes the first thing I would be asking my accountant is how I could set off that negative 20k profit from 2016 against whatever 2017 profit you make in order to reduce the tax payable on this year's figures somewhat .......... plus anything else you could rightfully claim of course.

 

[Dickjr.]

I had a customer complain about his bill , which happens , but as we all know the cost of living and doing business has risen and will keep rising. A 5000$ job 10 years ago could cost almost double today. I seen a pickup truck in the local sale bill for 89,900$ and it was used had 2500 miles on it. Not many folks can afford that.

 

[farmboy555]

Best to charge to much, than not enough. You have to know what it cost to open the doors every day. My repairs go on money out side of the balance sheet.

 

[Dickjr.]

I filed the other day , it worked out in my favor to take the repairs and spread them out over 7 years. I don't know how that works but my guy did set down and take a few minutes to ask some questions which helped me and clarified things for him to do his job. I feel better about what he done this year than in the past. In my small scale business , it still amazes me at the cost of operation , makes me wonder how the bigger guys do it. I know the margins are better , or they should be.