Business write-offs, or not

[yazbird8 17]

I am new to the business and understand that you cannot write-off anything(equipment, supplies, stationary etc) that you buy before doing your first job. I am a sole proprietor and have heard that I am not " official" until the first customer's check is cashed.

If this is true then should I hold off buying all my equipment until that first check is cashed?

I have access to my cousins pw equipment and I will be washing some friends homes, deck, driveway and fencing..... They will pay me by check.

Should I just wait to buy? That is a big chunk of change to not be able to write-off.............Thanks in advance

Steve

Stephen Andrews

Power Washing

Home and Property

Care and Maintainence

[RyanH 14]

I would write off anything you purchased during that year that is directly applicable towards your business. You just can't write it off before you've used it to make new income.

For example, if you buy $10,000 worth of equipment in December 2005 and don't use it until January 2006 to make your first dollar, you can't write the equipment off of last year's expenses because it wasn't an expense for your 2005 revenue. Granted, I *did* do this, but I doubt it was 100% correct. If you couldn't write off equipment you purhased before you ever made the money, how could you purchase it to begin with? Equipment is an investment for your future earnings.

I'm not tax accountant, but I would imagine this is how it works. Not being a big proponent of the current IRS structure, I tend to interpret the tax laws as a "common sense" basis.

[yazbird8 17]

OK, thanks Mike. I guess that means it's time to start ordering........Now I don't have to use the cuz's ratty pw afterall. Just kidding.........I will be buying 1 or 2 cold water pw's from him as back-ups though..........Thanks again.

Steve

[yazbird8 17]

Sorry Ryan.........Duh on me

[mikew 14]

I think this may be where the type of accounting method your business uses would apply. If you business uses a cash accounting method then you record income/expenses in the month/year received or spent.

My suggestion... seek the help or advice of an accountant.

Mike

[jgoral76 14]

Oh No Ryan Remember The Idiots Who Wrote The Irs Code Do Not Have Common Sense Thats Why Its The Irs. Lol Lol

[RyanH 14]

Oh No Ryan Remember The Idiots Who Wrote The Irs Code Do Not Have Common Sense Thats Why Its The Irs. Lol Lol

That's why my party rally for the next elections will be "Anybody Fairtax."

[PressurePros 248]

When you say "write off" what you are actually referring to is deducting things from your gross income to reduce your tax bill. You can carry over and amortize expenses as well as use depreciation of equipment as a valid "write off".

Example: If you make a gross $10,000 but had legitimate expenses and depreciation of $9000, you would only be taxed on the remaining $1000.

Many lay people confuse a "write off" or tax deduction with actual 100% reimbursement. You are only getting back the percentage of your tax bill. Let's say I am down to a $10,000 tax bill. I have no more deductions and it's December 25th. My local church asks me for a donation and the overzealous person says, donate $10,000. it's a 100% write off. If my corporate tax percentage is 20% then I saved 20% of $10,000. I just cost myself $10,000 to save myself $2,000.

My oversimplified example above doesn't even scratch the surface. Get yourself a good accountant.

PS: Why would you wait to buy equipment? You have all year to accumulate deductions?

[yazbird8 17]

Thanks everyone for your input. I just love when you guy's give great answers and advise and then follow up with "examples". I learn best that way. I think most people do..........

[yazbird8 17]

I'm gonna go see my accountant after April 15...........I figure he's got his hands tied now................Thanks also mike

[JFife 14]

RyanH is going to think I am some kind of creepy stalker for remembering this, but a few years ago he stated something that has held a lot of weight with me: (paraphrase) "how generous I am on my taxable income is in direct relation to how good of a job I personally feel the govt is doing with the money at that particular time."

That was a para-phrase, but if it is not accurate to the spirit of RyanH's past comment, I hope he'll correct it. I'll notify him that I plagerized his material:)

I also do a "common sense" approach to the exact nature of my taxes. I don't like to feel shady, but I also don't go overboard. For instance, if someone gives me cash on a job, I don't fret. However, if I don't have a CC or checkbook and have to pay cash for gas, if the machine doesn't spit out a receipt I don't go nuts either. But I think this is a question that plays more to the specific "type" of person you are.....I am a big picture person, and don't get caught up in the "small stuff" of life, i.e. a little cash here and there. I doubt someone that is highly detail-oriented would have this same feeling.

[mikew 14]

That's why my party rally for the next elections will be "Anybody Fairtax."

For the most part I am with ya. I'm all for the Fairtax...but I will be a little choosy who is pushing it.

Mike

[yazbird8 17]

So if I gross 80k and spend 50k on advertising (not that I would) I could deduct all 50k of advertising and just pay taxes on the 30k net?................Lets talk deductions......... I would love to hear everyones input on this subject..........It's that time of year anyway. Maybe we can all learn something to keep some hard earned money in our own pockets and not give it to the IRA.

[JFife 14]

I deduct anything imaginable---hair cuts, gym membership (need to use it though:)), LOTS of meals, etc. I can adjust it if it is wrong and I ever get audited, but I think one could make good arguments.

One thing you need to think of, however, is your credit. If you pay taxes on 20K in income, and decide you want to buy a house, start trailer shopping. And to get a home loan like a normal person, i.e. banker, you have to show two years of being at a certain income level. Self-employment does have it's drawbacks. And if you ever want a bank loan for you biz to grow, you'll need to show net worth, which means owning things. So while it is tempting to show next-to-nothing on your return, sometimes it will bite you.

[yazbird8 17]

Good stuff Jon............I understand the haircuts cause you gotta look good doing your estimates, and maybe meals if your away overnight, but how can you deduct the gym membership? I would love to do the gym thing.

[JFife 14]

.....a guy's gotta stay in shape for this biz.....sounds good to me! Deduction!

[Able Hands 14]

What I am gathering from some of you is that you don't care to carry your weight of the nation’s tax bill.

Do I think the government wastes an enormous amount of our money??? YES I DO!!

Do I think it is my decision as to what I'll claim (cash payments)? Absolutely not.

Anyone foolish enough to post on an open web site that they deliberately hide money in any amount from the IRS is looking for an audit. I mean no offense, but if you try to hide income from the government then I think you get what you deserve. I have only been running my handyman business since July of '05. Every cent of income must be reported. Not reporting it is tantamount to tax fraud.

I think it stinks out loud how high our tax burden is. But on the other hand, do you think it would be maybe a little better if everyone paid their fair share. Maybe this is a little naive on my part, but I’d like to believe that we are only paying what we NEED to in order to support our country. You may disagree with the policies of the current administration, but that doesn’t give you the right to decide that you are only going to pay a portion of what you actually owe by hiding money. If you think things are being handled poorly in Washington, or your state capital, then you have the ability to effect a change. VOTE!!!

If you don’t vote, and then want to BI^@H about the problems we have then I have no patience for you. Sorry, but I get a little revved up over anyone that wants to gripe about something and they don’t even exercise their most basic American right.

As a small business owner you have the ability to write off/deduct things that the average person doesn’t. The best advice given so far is to get/go see an accountant. If your accountant is worth a darn it shouldn’t matter that it is tax season. We pay our accountants handsomely, make them earn it.

Again, I apologize if I offended anyone with my above comments. But some of the thought processes from other posts above get me fired up.

Matt Schnurbusch

ABLE HANDS

(919) 696-5073

[JFife 14]

Matt,

The difference between me and you is that you willingly overpay. I bet you do report EVERY CENT of income, but do you report all of your deductions???? Are you sure??? Is your accountant sure??? Since the laws change, umm, constantly??? You live in fear of not reporting, and therefore overpay, probably rediculously. I'm sure your accountant is as patriotic as you are and is glad to see the govt get their hard-earned money.

Who said anything about not voting?? Calm down. "Revved up" is one thing--saying things that make no sense in another. Move to Canada.

[yazbird8 17]

This thread is about write-offs/deductions, not theft. No one here has advocated theft.......... Please re-read posts.......Chill.......I ain't mad at you

[PressurePros 248]

The IRS could audit me tommorrow and I would not lose a wink of sleep. I have an excellent and aggressive acountant who finds every deduction allowable by law. The IRS writes the tax laws, we just interpret them. When I cross the line my accountant says simply, "I won't sign that". It's his azz as well as mine. Deducting off the wall expenses to save a hundred bucks is not worth it. Since the dawn of my working years I figure I have given Uncle Sam about $400,000 in taxes. Am I patriotic enough?

[Able Hands 14]

Post deleted by Matt in retrospect!

[yazbird8 17]

AGAIN.....Before the interuption...I would love to hear everyones input on the subject of DEDUCTIONS..........It's that time of year anyway. Maybe we can all learn some things to keep some hard earned money in our own pockets and not give it to the IRA............No offense to anyone.......but......I'm hear to learn, not argue

[Able Hands 14]

Sorry, guess I took us off on a tangent. The short answer on deductions… Almost anything that is used for the business can be used for a deduction. One of your best deductions will be for your accountant. Find an accountant that you are comfortable with and pump their brain. After all as Ken said they are the one that have to sign off on your return.

I think John and I have just proven taxes and the like are a touchy subject for some folks.

Matt

[Able Hands 14]

I think I just had a case of diarrhea of the mouth/keyboard.

I did not mean to impugn anyone’s character, or patriotism. I have re-read my post twice, and I know that’s how it came across, I’m an A$$. I try not to make a habit of forcing my views on others, but occasionally I slip.

My Sincere Apologies,

Matt

[Jeff 232]

The best advise is see an accountant that deals with the construction trades and service industry. I just told my accountant if I get auditted, I'm screwed, not because Im cheating its because my paper work isnt up to par. Like my accountant said I have nothing to worry about, because I'm not hiding or cheating on anything. Now there are ways to work around deductions and have more work for you.

The haircut could be an deduction possibly, many meals are. there is so much you can deduct

Meals if its a meal between me and a customer thats at 50% but a meal for my workers to keep them on the job 100%

As for home office if its just a corner of one of your bedrooms or garage its not worth claiming. Why? becuase its a red flag in some cases, so biz people over estimate the worth of home office on taxes and the IRS knows it and may audit. For the little bit a home office saves why send up the read flag

LLC, S Corp, C Corp there are specific rules and if your not showing any profit or arent paying any payroll taxes Soc Sec they may look at you closer. My accountant said PWing is not a biz that should be LLC if you plan to grow. Why I dont know you may have to ask your accountant

Get an accountant that will work for you and one you can call anytime and will give you answers. Its well worth the $$$