Hwy guys a good friend of mine is in the process of starting up his own shop, mainly bagged trucks.. i know, but he was wondering if he purchased parts to build a truck for his business to show of what he can do, would all the be a tax deductable items in total or just partial? What he wants to do is buy the parts to bag the truck and do a write off on the parts so that they are free.
I would think that any items purchased for the business (whether it be parts, tools or vehicles) would an expense of the business and would offset income made by the business. Being tax deductible doesn't put the money back in his pocket...so they aren't free parts. It just means that he doesn't have to pay taxes on those. Example: He spends $20k in parts for the truck. He generates $50k in income from the business in the same year. His net income is $30k and he pays taxes on the $30k. So he still has to lay out the $20k for the truck...he just doesn't have to pay taxes when he makes it back in income. He really should talk to a CPA before he spends a dime though.
Research & Development ....Yes, deduction. However, a CPA may be able to explain how the deduction takes form and what portion of the R&D may become an ***et, to be carried on the books. Stu
I'm sorry in a way to have to say this; if your friend doesn't know the answer to this very simple business question, maybe he should wait a little and do a small business course before opening the doors for business. The one simple but inescapeable fact about owning/running a business is this. He is 'in business', he may be the best...(insert job ***le here), but that fact counts for little if he doesn't know what business is and how it works. Business is a disipline and skill, and as such, the principles and procedures can be learned by anyone. Too many small businesses fail due to the fact that the owner/s had few or no business skills. Then there are the guys who stuggle on year after year, wondering where all the money goes. Then there are the guys who no matter what are always flush with funds and run a very profesional organisation. The differance between the three kinds of operators is not hard to work out.
Fe26 olddrags I agree 100 % .. If he can't do this simple thing then he is behind the 8 ball already , needs to take a couple of cl***es at the local tech school at night , won't take long and will be waaaaay ahead of things.........
Does he have a State Sales Tax number? As far as sales tax goes, you pay the sales tax on items you purchase and use yourself and items you use on customer vehicles. Income tax is a whole different ball of wax, but you can take off anything you buy for your vehicle as business expenses. It does sound like he needs to figure out what's what before he gets started. There are lots of resourses to get the info. Larry T
Previous posts are right on...........just want to address the notion of "free" that is quite common. People think that when "you can write something off" or it is "tax deductible" it becomes 'free'. It doesn't. But it usually becomes less expensive. For example: lets say you have $1000 of taxable income.....but you also have $500 of tax deductible expenses. If no deductions, let's say the $1000 would be subject to 25% tax. So, you would pay $250 and net $750. With the deduction...the $1000 is reduced to $500 taxable....x 25% equals $125 tax. so the total retained after taxes is $1000 - 125 in taxes.....$875..........instead of $750. So, in effect, the $500 expenditure netted out at $375.....or stated another way, reduced your taxes by $125 Ray
A lot of great mechanics/technicians fail at business. They are good at their craft, but fail to educate themselves on the operation of a business. The above posters were spot on.
That being said wouldnt be wise to hook up with a good accountant that would be well versed in this area of the business ?How would you ever learn enough about all the differant tax credits and accounting practice without out further education all of the time.Not trying to be an *** but we would be lost without our great accounting firm helping us with all aspects of running a small business.
i wrote off my whole drag car but the biss now own's the car .if i was to ever sell the car the money would be income and have to be invested back in to the biss some how or you can sell it for a loss and wright off the loss every state is diffrent a cl*** would help him out there is pro's and con's to doing it .
Kinda wandering off topic a little but you might keep in mind that if you're running your racecar as part of business, there are lots more laws about trailering it. Larry T
So what you are saying you wronte it off as stated before or completely wrote it off and then it became the bussiness car? I will defintatly tell him to take some cl***es before he goes any further.
He does have a tax ID, and if he were to do it as a business expense it would come off the owed taxes at the end of the year right?
CPAs are often a waste of money, since they are designed for corporations. Look for an "Enrolled Agent". These are cheaper, certified by the IRS and more appropriate for small business.
You should get him to ask himself, and think long and hard on whether he wants to run a business or build hot rods. To VERY different things. Usually people with great skill in the shop make MORE money and have MORE free time off working in a good shop. Or, doing such great work and educating themselves to become better and better in an okay shop that they raise the level and make it a great shop. And a great place to build cars. For some reason people who love to work on cars want to own their own shop. Like running their own shop has anything to do with hot rods. Ask me how I know. Actually please don't... just kidding. 99% of mechanics who open their shop look back later in life and say I wish I had just kept that good job I had working on cars... Not trying to discourage anyone at all. You just get what you choose in life, so choose wisely and with full knowledge of what you are really getting. have fun either way wil
The problem with that is that where he lives there are only a few shops that never hire and when they do it very little pay. So he said screw it and wants to open his own place.
No, a business expense would be used when figuring the profit the business makes that is taxed for Income Tax. Basically, the more business expenses you have the less profit you make (for the same gross income), so you pay less Income Tax. The State Sales Tax is a completely different deal. It's the tax you pay on everything you sell or use in your shop. Larry T
Burl, you are not an *** for asking, quite the opposite in fact. You are almost right about the accountant. However good they are they are not the 'be all and end all' of a business. They are an important 'part' of the business, that is all. The owner of the business must be knowledgeable and wise enough to know when to call in the acct's skills. The owner decides which way the business is heading, what the goals and objectives are, who he will trade with, what staff he will hire and under what conditions and how he will conduct his acct's with suppliers and customers. Plus many other things that impact on the business. The acc't is primarily used (along with the lawyer) to bounce these ideas off and to give the most knowledgeable advice. The other time he is used is at the end of the tax year. The acc't dosen't run the business, the owner does. The owner should have sufficient knowledge about all manner of things to do with the business, in a general way. He doesn't need to know every last detail about financial or legal matters, but should have enough sense to know when to pick up the phone.
All good advice - tax accountant/tax preparer. Those guys spend eight months reviewing new IRS regs and that's something a business owner cannot do. The business owner runs the business, but you need to have someone (maybe it's yourself) keep the accounts on a daily basis - and keep them in an accepted and orderly manner. Let your tax guy have the job of determining exactly what is and isn't a business expense. I use my tax folks every quarter and then again in the final filing of personal income tax (My business, as all of them have been, is a SubS Corp), and whatever profits the company has generated over and above the expense of running it becomes personal income. This means that even though you can "write if off" (one of the most misunderstood terms in the business world), you still paid for it somewhere along the line - whether it's a new roll of adding machine tape or a company jet. The tax folks can guide you on just what can be deducted and how much of it. The IRS has gotten clever over the years - you cannot buy a 'company' Ferrari if that level of panache and luxury cannot be proven to be necessary to conduct business. They will look at your $250,000 claimed deduction and allow you an amount equal to a new pickup or p***enger car if they deem that the Ferrari (or whatever) is not a reasonably necessary company car. This is why real estate agents get to have large Caddies, Beemers, etc - they have proven over the years that it's more expedient to comport their clients in a capacious vehicle with some luxurious tones than ask them to all cram themselves into some half-pint econobox. Starting a business is simple....keeping it viable requires a lot of work over and beyond your manufacturing abilities. Taking a cl*** in small business will serve to either educate you, or make you realize that it's not too bad working for a living. dj
I recently started a small business. I agree with others that you must retain a good accountant but I HIGHLY RECOMMEND getting a book by Ronald Mueller called "It's How Much You Keep That Counts". I don't know if it will work but here is a link http://homebusinesstaxsavings.com/ His book and site specifically address questions like yours. I have nothing to do with him or his book but I know it has helped me tremendously. GOOD LUCK!
Edit: In the example mentioned, the car can indeed be used as "advertising expense" and written off 100%. But written off really means the expense is subtracted from the profit to determine income. If there is no profit, there is no "write off" and thus no benefit to the business. You cannot then sell it as Finished Goods since it will fall under Cost Accounting rules for manufacturing. Building a car to sell is different from building a car to use strictly for advertising. Don't mix them up. I am an accountant.
Many very good pieces of advise allready posted, so I'll just add my 2 cents from over 45 years owning several small business. Taxes are normally based on profits. No profits...no taxes. The fed's will allow a business to be run in the red (no profit) for just a few years, then someone shows up to audit the books!
yes completely wrote it off every dime .over 15k. i told them it's for advertising .it's not a shop car to run part's that's whole other deal .i only race the car about 5 time's a year .my plan is to sell the rolling body and invest the money in a pole barn add on to the shop' then you can use your barn as a right off over the next 18 yr's' say you don't have enough deduction's for the year and you need more 'you can take a chunk of what your shop is worth and wright it off' but it has to be done over a period of time .last year they pasted a new law were you could right off 1 major purchase all at one time. so i did my new compressor. there is a lot of benifits to a buisiness you have to learn them all i only know mi law's im sure other state's are diffrent ..
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