PDA

View Full Version : Newbie LLC Deduction Questions



DaCrunge
02-28-2006, 06:53 PM
I have kept track of all of my expenses for 2005, which was the first year of my business. My question regards equipment purchases I made using a credit card.

What can I deduct? I don't yet fully understand depreciation vs. deducting the full amount at one time, but assume that I want to maximize the amount I can deduct this year rather than stretch it out over multiple years. So can I deduct the full total of my equipment purchases, or only that which I actually paid against the loans? In other words, the initial credit card loan was $7500 in July, it was $6000 on Dec 31.

I'm in Colorado USA.

Thanks

hw15
04-06-2006, 02:01 PM
The IRS forces you to stretch out the cost of "capital" or fixed assets over a number of years, called depreciation. That is, you can only deduct part of it each year for a certain number of years. My friend with a Master's degree in Finance swears this is beneficial to the company.

If you think it would benefit you more to take the full deduction at once there is a way around it -- you can file a form 179 to take it all at once. Of course there are restrictions for filing a 179 that you can learn more about on the IRS website at:

http://www.irs.gov/faqs/faq-kw106.html

Items that are included as "capital" are purchases for buildings, vehicles, machinery and equipment. Specifically, copy machines, computers, etc. You know it is "capital" if it will last more than one year. In other words, it doesn't get used up or wear out and has a useful life of more than one year. In example, the IRS classifies a computer as a 5-year item and office furniture as 7-years.

Here is how depreciation of capital works:

Depreciation Example

Cost of machine $14,000
Useful life 7 years
Depreciation expense $2,000 per year
(you end up getting back the entire cost of the machine at the end of 7 years)

But, you are asking about a credit card, and I'm not that familiar with those rules. You said the purchases were for $7500 of "capital" items and that you have only paid off $1500. I would guess that you can only deduct the amount you have paid, $1500. You can depreciate it or file a form 179.