Tax deductions?

[Joseph O'Neil]

I also don't think that running a side business is really all that cumbersome (esp. if you enjoy it) nor are the administration issues so time consuming as claimed. Filing a DBA is a short form and a few bucks. Takes 10 minutes. Schedule C is hardly a major test, and really lets not exxagerate the time it takes to fill out tax forms once a year. Keeping receipts requires a file box. And recording income/loss is not any more complicated than balancing a checkbook once a week. Really, with the internet and all, I don't get why people are so willing to make it sound so intimidating and complicated?

-snip-

Hi;
First off , I mean absolutely no offence what so ever, no insult, but book keeping is only "simple" to those people who have never been through any kind of audit before.

First rule of any kind of audit or government inspection is "where's the paper". Records on computer mean nothing in an audit - you will be expected to produce the paper, and ASAP too.

After that, well, you never look at book keeping agian quite the same way.

As somebody who operates and does the bookwork fro two incorporated companies - both small, both in Canada, a couple of observations that hold true for *any* country on this planet.

1) It is sometimes wise to hold back on some deductions, but keep the full records. Any auduitor, anywhere, in any juristiction, can always find something. Tax laws are setup that way. The Canada Income Tax act is physically longer than the Bible (small print too ) and no one person inthe country knows every aspect of it, so an auditor cna always develop a "new interpretation". same goes for the IRS, or any other country (I keep in contact with other business people in other countries).

So, when the auditor "finds" something you missed, you go - oh, no problem, and by the way, I fogot to take this decution here - while you are re-evaluating my deductions, woudl you add in this oen I forgt?" It's an old trick an old tax account taught me years ago,a nd yes, once in a blue moon, it saves your bacon.

2) any company setup to make money by use of deductions is just asking for trouble. The government does not like to hand out money, even when youa re in the right. Took me 3 months to get $300 I overpaid the government this past year. Grrr....

3) Loook carefully at what deductions governments pay attention to,a nd what they do not. example, in addition to company work, I used to be treasurer for a small government funded health clinic for about 6 years. If we needed a new peice of medical equipemnt - baby scales for example (drug dealers love to steal them as they are used for weighing out the drugs they sell), well, it could take some weeks or even months to get funding for a replacement. But when it came to computers or software, there never seemed to be any issue at all. Never a question why we needed more ram, bigger ahrd drives, etc, but explain why you need a new examination table, that would take time.

So the point I am trying to make to all of you, say you do have a side business, you might have to justify to an auditor some day why you need that new Super Angulon, but that same auditor may never question why you need a new laptop. Certianly not fair, but that's sometime how the system works. Learn it and work with it.

That's all for now - just be carefull.
joe

[vicgin]

I am not in business and don't want to start a new thread but do have a question.

Do the deductions for equipment acquisition apply only to purchases made while in business and not before? I have a lot of existing equipment for my, ah err umm, hobby. Could its worth be an allowable start up expense in business?

Regards,
Herbert

[darr]

Do the deductions for equipment acquisition apply only to purchases made while in business and not before? I have a lot of existing equipment for my, ah err umm, hobby. Could its worth be an allowable start up expense in business?

Regards,
Herbert

I think the short answer is if you want to start a new business that will include equipment that you personally own, sell the equipment to the business (capital investment) and start from there.

[BrianShaw]

I think the short answer is if you want to start a new business that will include equipment that you personally own, sell the equipment to the business (capital investment) and start from there.

Wow, that would take some real soul-searching to determine market value. Isn't market value defined by IRS as the price a person who didn't need to buy would pay a person who didn't need to sell. It could lead to schitzophrenic behavior... part of you trying to set a high price, while the other part of you is trying to get a bargain.

[darr]

Wow, that would take some real soul-searching to determine market value. Isn't market value defined by IRS as the price a person who didn't need to buy would pay a person who didn't need to sell. It could lead to schitzophrenic behavior... part of you trying to set a high price, while the other part of you is trying to get a bargain.

You mean like someone selling their Deardorff for $1.00 to their company and then claim it as a $2,000 + deduction? Now who would do that?

[Joseph O'Neil]

Do the deductions for equipment acquisition apply only to purchases made while in business and not before? I have a lot of existing equipment for my, ah err umm, hobby. Could its worth be an allowable start up expense in business?
Regards,
Herbert

Can be, if you do it right, and are reasonable about it. There are several different ways to do it. the main theme however, is "fair market value". For example, I have an incorporated company, which under law, is a seperate legal entity. Therefore, I was able to sell my company some of my personal camera gear.

However, to justify my prices at the time, I went on Ebay, looked up completed auctions, printed out some of those pages, and i also looked up some used camera prices advertisements in magazines, on the net, etc,a nd saved those prices on paper. Therefore, if any auditor ever comes back 3 or 4 years after the fact (they never did) and questions my rationale in using those prices, I pull out those papers and prive that my prices were representative of fair market value at the time.

another issue, which may or may not arrise, depending on your specific circumstances, is I have mroe than one functional 4x5. For example, my company owns the monorail I have, but my Tachihara is owned personally. Same thing for some of my lenses. The reason i did this is my company is a side business, not full time.

You see, if you are a full time photogrpaher - got an ad int he yellow pages - the whole 9 yards, any and all gear and supplies you buy - full deduction as expenses in one form or another.

But even with an incorporated company, when it is a side business, you have to be carefull. It's always possible for the government to make a ruling that your business is a hobby.

So in my specific case, to get around that, I have very clearly marked on my books, these lenses and this camera are company property, and this camera and these lenses are personal use. There is nothing to stop me from using personal lenses for business use if the opportunity arrises, but I have it clearly marked.

Also for insurance purposes, anything you use - camera, wood saw, power washer - anything you use for business use is very often NOT covered under standard home owners insurance. Your milage may vary, so look into it to be sure. So by having specific parts of your gear and or equipment marked personal and business use, in my case, it saves on insurance.

One last caveat is that while basic tax laws are similar in almost all countries based on the heritage of English Common Law, the reality is the "devil in the details". You cross a state or provicincail line, and pow, everything can change on you in a heartbeat, so make a point of either getting professional advice or researching what you want to do very, very carefully. Bottom line is, it's not always whatyou want to do, but the actual method of how you do it that either saves your bacan or drops you into the fire.

good luck
joe

[steve_782]

Did I tell you how much I love the idea that Uncle Sam will pay for the Deardorff I bought this year for my side business?

You may want to look into the entire tax situation, not just the federal income tax implications. Where I live, you have to file a schedule with the county for all business equipment deductions. This puts you on the county tax rolls and you have to pay taxes on your business equipment as long as you show it as a business asset.

You can have a 10 year old computer, and until you show it as sold - you're still paying taxes on it. For photo equipment, this makes no sense, so I no longer deduct photographic equipment from my income tax. This just sets me up to pay taxes to the county for as long as I own the equipment.

[Ralph Barker]

. . . Where I live, you have to file a schedule with the county for all business equipment deductions. This puts you on the county tax rolls and you have to pay taxes on your business equipment as long as you show it as a business asset.

. . . until you show it as sold - you're still paying taxes on it. . . .

That was also the case in Santa Clara County in California, where I previously lived. Get a business license from the City, and then the County wants a piece of the action. Although the tax rate was fairly nominal, filling out yet another set of tax filings was an additional hassle, and different rules applied.