TSB
screen printing => Equipment => Topic started by: screenprintguy on October 02, 2013, 10:39:55 AM
-
So I'm sure we aren't the only shop being bombarded by leasing companies and equipment dealers, manufactures ect. about buy now and receive the majority of your equipment purchase back pitches. Can some one with the 179 experience lend their layman's elaboration as to what you actually benefit from this section 179 situation from the IRS. The emails and mailers we have ben receiving, "lead one to believe", that by jumping now and purchasing, leasing, ect. a piece of equipment before Dec 31, 2013, that you will receive almost all of the money back that you plan to spend on said purchase. Seems to good to be true. Reading the IRS code sometimes is like reading alien language. Going to my CPA, well he will just say, don't buy anything and not explain to me lol, and, "not all", but most reps from lease or manufacturers are only worried about talking you into the sale rather than properly explain this. I post this here as I am sure there has to be more than just myself who want to know how this whole thing really works.
-
So I'm sure we aren't the only shop being bombarded by leasing companies and equipment dealers, manufactures ect. about buy now and receive the majority of your equipment purchase back pitches. Can some one with the 179 experience lend their layman's elaboration as to what you actually benefit from this section 179 situation from the IRS. The emails and mailers we have ben receiving, "lead one to believe", that by jumping now and purchasing, leasing, ect. a piece of equipment before Dec 31, 2013, that you will receive almost all of the money back that you plan to spend on said purchase. Seems to good to be true. Reading the IRS code sometimes is like reading alien language. Going to my CPA, well he will just say, don't buy anything and not explain to me lol, and, "not all", but most reps from lease or manufacturers are only worried about talking you into the sale rather than properly explain this. I post this here as I am sure there has to be more than just myself who want to know how this whole thing really works.
I sent your post to our East Coast manager to send you a sample our CFO did to explain it in layman a terms. I am currently in Europe and have no access to it.
-
Thank you Rich!!
-
The way I understand it, in layman's terms:
Buy/lease a piece of equipment before the year's up and you can DEDUCT 100% of the cost off your taxable income for this tax year OR you can split it into 5 chunks and deduct that amount for the next 5 years.
Your accountant can and should decide for you which way is best based on yearly sales. If you have had awesome sales this year and you're worried about tax liability, buy something big lol.
-
Short and sweet, is that the deduction for that piece of equipment can be done in one shot rather than through depreciation.
So, if you are paying around 20% tax rate, then you will, in one shot, essentially save 20% of the purchase price (not the entire price) This is and has always been the most common myth of "write-offs"
Just ask Kramer
Seinfeld - write off (http://www.youtube.com/watch?v=rCZRqH7sRyA#)
-
If you don't take the one shot deduction do you still get the 100% over the 5 years of depreciation?
-
The way I understand it, in layman's terms:
Buy/lease a piece of equipment before the year's up and you can DEDUCT 100% of the cost off your taxable income for this tax year OR you can split it into 5 chunks and deduct that amount for the next 5 years.
Your accountant can and should decide for you which way is best based on yearly sales. If you have had awesome sales this year and you're worried about tax liability, buy something big lol.
This matches my understanding of it, too.
for example, you have $50k in profits for the year. You go out and lease a $50K piece of equipment and write it all off this year. It wipes out your profit and you don't have to pay taxes on it. Problem is, you will be making lease payments for next 5 years and you will not be able to deduct that amount. It essentially turns what would be the deductible payments into profit in the future.
pierre
-
I will try to explain the IRS Section 179 tax law in simple terms but please consult your accountant before you do anything.
This tax law, which is about to change dramatically at the end of this year, allows you to write off the depreciation on capital equipment all in one year up to $500,000.00. Normally you would have to spread the depreciation out over 5 to 7 years, but this incentive lets you lump it all into one year. That means you could show all of that depreciation expense in one year, which would lower your net income and taxable income. The bottom line is you would pay less tax. This will only benefit you if you show a profit at the end of the year and the profit would need to exceed the purchase amount of the equipment.
The reason it has become such a big topic of discussion is that the law will change at the end of this year and in order to take advantage of the tax incentive the equipment needs to be on your floor before the end of the year. Most equipment manufacturers have lead times so as you get closer to the end of the year to make a purchase, they may not be able to get your equipment shipped in time to take advantage of the incentive. Next year the law lowers the amount you can write off in one year to $25,000.00. Here are a couple examples of the difference between this year and next year.
Example 1 2013 2014
Equipment Cost 35,000 35,000
Section 179 depreciation 35,000 25,000
Regular depreciation @ 14.29% 0 1,429
Deduction in first year $35,000 $26,429
Example 2 2013 2014
Equipment Cost 80,000 80,000
Section 179 depreciation 80,000 25,000
Regular depreciation @ 14.29% 0 7,860
Deduction in first year $80,000 $32,860
The more you spend, the more you can deduct as an expense. There are details of the Section 179 tax incentive that I have left out, but unless you are planning on spending over $500,000.00 they don’t have an impact. Hopefully this helps you get a better understanding of what all the chatter is about. Please consult your accountant and see how this will benefit your company.
Glen Carliss
M&R Companies
-
quick disclaimer before I throw stuff out, I have not kept up with what's going with the regulations last few years so things might not be what I remember.
This regulation seems to expire at the end of the year and it keeps getting renewed. It just seems that for last 5 or more years it was always expiring at the end of the year. I have not really kept up with it so it is possible it came and went several times in the recent history, but I doubt it.
as Glen said, talk to your accountant!
pierre
-
quick disclaimer before I throw stuff out, I have not kept up with what's going with the regulations last few years so things might not be what I remember.
This regulation seems to expire at the end of the year and it keeps getting renewed. It just seems that for last 5 or more years it was always expiring at the end of the year. I have not really kept up with it so it is possible it came and went several times in the recent history, but I doubt it.
as Glen said, talk to your accountant!
pierre
I thought the exact same thing! I remember last year getting out press in before the end of the year to get the deduction.
-
And the year before because we were trying to get the dryer deal done before Jan 1.
-
Bear in mind that there are two types of leases - operating & capital. If I'm not mistaken, you cannot take all the depreciation all in one year if it is a an operating lease; it has to be a capital lease. Again, as others have said, consult your accountant.
-
Thanks Pierre and Glen for breaking it down, "Dummies for 179" style!! I know a lot of folks are just scared to ask sometimes so having it out like this is great for the interested. Like I said with our CPA, I bring something like this to his ear and he yells at me to not spend a dime lol, not yet anyway. When we get in that boat of having a couple extra grand laying around at the end of the year, I can see spending it on gear for the future instead of handing over a big un-necessary chunk of hard earned doe to good ole Uncle who ever he is these days. I see, 100,000 in end of the year profit, and an average of just say anywhere from 13%-30% being taxed, not sure what it would exactly be it really seems to depend on situations, states ect, you have 13k-30k possible tax bill, that spent on or towards a piece of gear that will generate more efficiency which equals more cash making ability makes sense. But all of you guys are right, before anyone actually pulls the trigger, consulting with your CPA is always good business.
-
It's great the phishing lease companies make it sound like the government will cut you a check for whatever you spend though isn't it? ::)
-
It's great the phishing lease companies make it sound like the government will cut you a check for whatever you spend though isn't it? ::)
This is exactly why I wanted to start this thread. This week alone we have gotten at least a dozen blasts through email, a few dozen cold calls on the shop line, and a stack of mail from lease companies and equipment dealers who, "alsmost" all make it sound like you will get a check back from the Gov for getting in on a big buy "RIGHT NOW" :o It's nice to see a manufacturer hop on this thread right away and honestly explain how it works for those who can see a benefit from the 179. So thanks again to the M&R guys for chiming in with honesty!
Mike
-
Ok, so the big change is the 179 option is being capped at 25k. That's good to know, thanks.
I agree with all said here. This stuff really confuses me but my understanding is:
The only reason I can see to sec 179 something is if it offsets that year's profit and actually reduces your taxable income to a degree that you are taxed less in that year than you normally would have been. Otherwise, it's often preferable to spread out this offset to your income via depreciation.
The IRS covers all their bases- the tax stuff relating to the equipment will come out the same whether depreciated or expensed - that is, you will get the same tax benefit specific to the equipment over 5 or 7 years depreciated as you would by expensing it all in one year.
This is where the sales argument is silly in "normal" years where a cap isn't about to be placed on the option. Except in the case mentioned above, expensing something in one year v. 5 or 7 is simply moving the expense values around.
-
Short and sweet, is that the deduction for that piece of equipment can be done in one shot rather than through depreciation.
So, if you are paying around 20% tax rate, then you will, in one shot, essentially save 20% of the purchase price (not the entire price) This is and has always been the most common myth of "write-offs"
Exactly.
Say your business has profitable sales of $100,000 and NO expenses (for numbers sake) and you're a simple proprietorship (meaning all unexpensed profits go to your personal income). The $100,000 goes to your personal income tax and if that tax bracket is 20%, then your tax is $20,000.
Now take a full current year 179 deduction (equipment purchase) of 80,000 off the $100,000 making a carry forward to your personal of only $20,000. Here's where the numbers skew a bit as your bracket would be lower. But let's say it stays the same at 20%. Then the tax would be $4,000, for a tax savings of $16,000. Since you still paid $80,000 for the equipment, you can consider the equipment cost was only $64,000.
Just be sure and watch Salvage value if/when you sell it. That's the amount you have to claim if you sell it (or trade it) before it's lived out its life and is considered scrap.
Leasing - I always thought leasing was 100% write-off with no consideration of depreciation. That's why the big corporations sell their home office buildings and lease them back for 99 years. Maybe something about that has changed. Of course, with leasing you don't own a thing.
Again, always consult a tax attorney (my suggestion is go with one that is an attorney too) when looking at really big numbers.
My 2c.