Grant Erwin wrote:
I have had a large hobby metal shop for a long time. I have recently begun
operating as a small business out of my home shop. I have never deducted
anything (yet) from my taxes.

I want to know the mechanics of transferring assets to my business and then
depreciating or writing them off. There is lots of information out there on
how to depreciate assets purchased new, but little on my situation. For
example, I have an older but fully rebuilt Bridgeport mill which would
probably sell for about $4k right now. Can I transfer the asset to my
business and depreciate that over seven years?

Well, as the others have pointed out, a tax
accountant is the best option, but I'll still
tell you what I think.

First of all, you don't have to depreciate.

In 2007 you could take a "section 179 deduction"
of up to $125,000 for equipment placed in service
in that year subject to some limitations. So
most small businesses can deduct 100% of their
capital equipment purchases the first year and
not have to fiddle with depreciation.

That said, I think the law requires that your
business "buy" the equipment. Since a sole
proprietorship puts your finances and assets
in the same pot as the business, I don't see
how you could do it.

OTOH, if you set up a corporation, there should
not be any problem with you selling your mill
to the corporation for something resembling
market value. The mill should be a section
179 deduction and fully expensed the first
year. Of course, you'll have to declare your
personal profit on the sale. And keep in mind
that if you fold the business, you'll have to
sell the mill back to yourself.

Finally, if you are serious about this and
are doing any research and development, be
sure to read up on the R&D tax credit. It's
something of a bitch to calculate after the
first year, but it can save you quite a bit
of taxes. And most small business tax accountants
don't have a clue it exists.