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?

Thanks,

Grant

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?

Thanks,

Grant

You need to talk to an accountant. If you've been operating a business
without paying taxes you already have problems. It's not just a function
of deductions, there are also self employment taxes that those
deductions go against.

"Pete C." wrote:

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?

Thanks,

Grant

You need to talk to an accountant. If you've been operating a business
without paying taxes you already have problems. It's not just a function
of deductions, there are also self employment taxes that those
deductions go against.

Oh, and also get a lawyer for the zoning and other issues related to a
home business shop vs. a hobby shop. And the fire marshall for the regs
related to your welding business. And check with OSHA for those regs and
inspections. Make sure you have all the required PPE, fire extinguishers
(and they're annually serviced too), etc.

On 2008-08-27, 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.

big mistake

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?

You definitely need to talk to an accountant.

If it was up to me, I would not depreciate anything that I already
bought with personal funds, but I would write off the new stuff.

The key is to make enough money to cover your writeoffs to make a
profit every year.

--
Due to extreme spam originating from Google Groups, and their inattention
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Sell your equipment to your brother, sister, neighbor, etc. this year. Give
'em a loan to purchase. Start your business next year, Buy equipment from
brother, sister, neighbor, etc.

An accountant is going to tell you that it is difficult to go back. The
above gives you a current year paper trail. Don't give your accountant to
much information - he don't want to know.

Karl

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.

Grant,

I would find an enrolled agent for your taxes. Accountants
are the worst thing for you if you are wanting to know what
you can and cannot do. My tax guy is not only an enrolled
agent, but is the president of the local association of
enrolled agents. It costs me about $320 last year, with
audit insurance, and I'm damned happy to pay him. I
literally would not still be in business if not for him.

You can lump all your current assets in and depreciate them
over time. If it's not a huge amount, you can probably
depreciate it in a single year. BUT, once you do that, if
you later sell one at more than the depreciated value, you
have to claim the difference as profit and pay taxes on it.
And collect sales tax.

Talk to an enrolled agent, you might be better off leasing
the equipment to the business. Being a lease, the cost is a
write off. And, the money your business is paying your
private self is unearned income which has a tax advantage.
A friend of my dad's ran a business out of his garage in San
Jose for 20 years and leased the machinery to his business.
He's not only a genius with high power electrical stuff, he
really knows the ins and outs of legally keeping as much of
his earnings as possible.

None of the above should be taken as legal advice, tax laws
in Washington are different than California. But an enrolled
agent will know exactly what to do to help you.

Couple years ago, I foolishly signed up for a Trump class.
I'd attended a freebie seminar just to see if I could learn
anything, wasn't really interested in playing in the real
estate market. Wasn't going to sign up for the paid class
until the speaker talked a big story about how the class
would discuss doing business with the government and that
interested me. Anyway, one of the tidbits I did get from the
class was the overwhelming value of enrolled agents. I
already had my tax guy lined up, but it was nice to learn I
had the best guy on my side.

Jon

On 2008-08-27, Jon Anderson wrote:
Talk to an enrolled agent, you might be better off leasing
the equipment to the business. Being a lease, the cost is a
write off.

But Grant would get rental income, which he would need to report, it
is a wash.

Jon

--
Due to extreme spam originating from Google Groups, and their inattention
to spammers, I and many others block all articles originating
from Google Groups. If you want your postings to be seen by
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"Pete C." wrote:

"Pete C." wrote:

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?

Thanks,

Grant

You need to talk to an accountant. If you've been operating a business
without paying taxes you already have problems. It's not just a function
of deductions, there are also self employment taxes that those
deductions go against.

Oh, and also get a lawyer for the zoning and other issues related to a
home business shop vs. a hobby shop. And the fire marshall for the regs
related to your welding business. And check with OSHA for those regs and
inspections. Make sure you have all the required PPE, fire extinguishers
(and they're annually serviced too), etc.

Don't forget insurance either, commercial general liability, possibly
product liability since you're fabbing stuff. Your homeowner's insurance
will almost certainly be an issue. Your best bet will be to lease a
warehouse / shop bay in an industrial park which will remove a huge
number of issues vs. operating a commercial fabrication business at your
residence.

On Wed, 27 Aug 2008 13:41:43 -0500, Ignoramus17245
wrote:

On 2008-08-27, Jon Anderson wrote:
Talk to an enrolled agent, you might be better off leasing
the equipment to the business. Being a lease, the cost is a
write off.

But Grant would get rental income, which he would need to report, it
is a wash.

Jon

From what Grant has said in the past his type of work has
risk involved, ie being sued. If the company owns the
equipment an unfavorable outcome from a lawsuit could easily
take all the equipment/tools that he owns.

If you incorporate and rent the tools to the corporation
they would have a degree of protection from lawsuits. In
other words keep the corporation as poor as possible so it
has very little assets to lose.

I would check into insurance first and foremost. My Dad ran
a little manufacturing business for a bit. The liability
insurance couldn't be had economically.

--
Leon Fisk
Grand Rapids MI/Zone 5b
Remove no.spam for email

Ignoramus17245 wrote:

But Grant would get rental income, which he would need to report, it
is a wash.

Yes, I noted that, though to be precise, there is a
difference between renting and leasing. I also noted it is
considered unearned income and is taxed differently than
earned income. I believe one of the benefits is that SSI is
not applied to unearned income. I've not done it myself and
so don't really know all the details, but know several
people that have. A good tax person can tell him if it's
worth doing in his case, but it is an option.

Anyone in Grant's shoes really should cough up the money for
an enrolled agent. If they feel the money didn't save them
enough to justify, they can always go elsewhere the next
year or DIY.

First year I went to my current tax guy, he saved me 3
grand. And noting I'd used H&R Block the year before, asked
questions about that return. Turns out H&R missed a number
of deductions. He filed an amended return for the previous
year and I picked up another $500 or so. I was very very
happy to write him a check for $280 for his services! With
taxes, the devil is in the details, and the details can
really add up to big savings.

btw, anyone in the Sacramento area that wants a first class
enrolled agent, email me privately for his contact info.


Jon

"Grant Erwin" wrote in message
news:sRetk.770$482.519@trnddc06...
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?


Make sure that when you make a part of your primary residence a
business that you don't loose the one time capitol gains tax exclusion void.

Tom

On 2008-08-27, Jon Anderson wrote:
Ignoramus17245 wrote:

But Grant would get rental income, which he would need to report, it
is a wash.

Yes, I noted that, though to be precise, there is a difference
between renting and leasing. I also noted it is considered unearned
income and is taxed differently than earned income. I believe one of
the benefits is that SSI is not applied to unearned income. I've not
done it myself and so don't really know all the details, but know
several people that have. A good tax person can tell him if it's
worth doing in his case, but it is an option.

What I do know is that the IRS is looking for businesses to produce
cash, either as salary or dividends. They also want the owners to pay
themselves a reasonable salary (what is reasonable to them, may be a
pittance compared to market, but it should be something).

They may frown upon shenanigans such as paying oneself rent etc, and
having no income or SS paying salary. I am all for saving on taxes,
etc, but not at the cost of being flagged for an audit, or worse. A
good accountant would tell Grant what ratios to follow, etc.

Anyone in Grant's shoes really should cough up the money for
an enrolled agent. If they feel the money didn't save them
enough to justify, they can always go elsewhere the next
year or DIY.

First year I went to my current tax guy, he saved me 3
grand. And noting I'd used H&R Block the year before, asked
questions about that return. Turns out H&R missed a number
of deductions. He filed an amended return for the previous
year and I picked up another $500 or so. I was very very
happy to write him a check for $280 for his services! With
taxes, the devil is in the details, and the details can
really add up to big savings.

I had a similar experience, went from a zombie accountant who never
cared, except for the quantity of customers, to someone who cares.

i

btw, anyone in the Sacramento area that wants a first class
enrolled agent, email me privately for his contact info.


Jon

--
Due to extreme spam originating from Google Groups, and their inattention
to spammers, I and many others block all articles originating
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On 2008-08-27, Leon Fisk wrote:
On Wed, 27 Aug 2008 13:41:43 -0500, Ignoramus17245
wrote:

On 2008-08-27, Jon Anderson wrote:
Talk to an enrolled agent, you might be better off leasing
the equipment to the business. Being a lease, the cost is a
write off.

But Grant would get rental income, which he would need to report, it
is a wash.

Jon

From what Grant has said in the past his type of work has risk
involved, ie being sued. If the company owns the equipment an
unfavorable outcome from a lawsuit could easily take all the
equipment/tools that he owns.

And if the business owner mixes private and corporate business, then
his corporate veil may be pierced and personal assets taken anyway.

It takes a substantial effort to maintain enough separation. Something
that I decided is not worth doing and is unlikely to succeed, for me
(I had a corporation for appx. 10 years). My own approach is to avoid
things that could expose me to big liability.

i
--
Due to extreme spam originating from Google Groups, and their inattention
to spammers, I and many others block all articles originating
from Google Groups. If you want your postings to be seen by
more readers you will need to find a different means of
posting on Usenet.
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On Wed, 27 Aug 2008 15:59:20 GMT, 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?

Thanks,

Grant
=============
Unless you are making megabucks and have significant deductions,
IMNSHO you are far better off staying under the radar.

The few dollars you *MIGHT* "save" through depreciation will be
swamped by the multitude of new expenses, fees, permits, taxes,
licenses, etc. etc. that will be levied and the inspectors will
descend like locusts on your home/shop. As soon as the value of
this equipment becomes know, personal property taxes will be
levied, possibly with back taxes and penalties, and depending on
where the payoffs are made, your home/shop will become a burglary
target. The seedier/poorer your home/shop looks on the outside
[and keep the door down] the better.


Unka' George [George McDuffee]
-------------------------------------------
He that will not apply new remedies,
must expect new evils:
for Time is the greatest innovator: and
if Time, of course, alter things to the worse,
and wisdom and counsel shall not alter them to the better,
what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman.
Essays, "Of Innovations" (1597-1625).

On Wed, 27 Aug 2008 20:01:34 -0500, Ignoramus17245
wrote:
snip
And if the business owner mixes private and corporate business, then
his corporate veil may be pierced and personal assets taken anyway.
snip
==
A partial solution here can be to set up some sort of straw
man/cut-out company or corporation that actually sells the
goods/services after "buying" these for cash. Make sure that
this is like a floating crap game or incorporated in Panama. The
most that the sharpies can get that way is the busted stapler.


Unka' George [George McDuffee]
-------------------------------------------
He that will not apply new remedies,
must expect new evils:
for Time is the greatest innovator: and
if Time, of course, alter things to the worse,
and wisdom and counsel shall not alter them to the better,
what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman.
Essays, "Of Innovations" (1597-1625).

"F. George McDuffee" wrote:

On Wed, 27 Aug 2008 15:59:20 GMT, 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?

Thanks,

Grant
=============
Unless you are making megabucks and have significant deductions,
IMNSHO you are far better off staying under the radar.

The few dollars you *MIGHT* "save" through depreciation will be
swamped by the multitude of new expenses, fees, permits, taxes,
licenses, etc. etc. that will be levied and the inspectors will
descend like locusts on your home/shop. As soon as the value of
this equipment becomes know, personal property taxes will be
levied, possibly with back taxes and penalties, and depending on
where the payoffs are made, your home/shop will become a burglary
target. The seedier/poorer your home/shop looks on the outside
[and keep the door down] the better.

Exactly. If it's to be a real business and produce real income and it
isn't a simple office / computer based business, it *needs* to be housed
in a separate commercial location, i.e. industrial park suite. Once you
have a business with machines, then the insurance, zoning, OSHA, fire
code and other headaches require separation from your residence.

Grant Erwin writes:

I want to know the mechanics of transferring assets to my business and
then depreciating or writing them off.

Don't listen to all the scairdy-cat advice. The wheel would never have
been invented with the typical mindset about taxes and liability these
days.

If your intent is to report the honest numbers, then file the Schedule C
and 4562 for depreciation with your best honest numbers. The risk of ever
having to prove your reporting is very low.

The "hire an accountant" advice is silly, because the true cost is actually
30 times what it might appear, reflecting the chances of such backup
actually mattering in the real world.

The difference in outcomes from doing it yourself versus hiring a
"professional" is minimal, and not worth the expense. It's neurotic to
prepare the perfect income tax return, because there is no such thing to
begin with, and your amateur approximation is good enough considering the
unlikelihood of anyone ever reading your return beyond checking arithmetic.

Absolutely. Recently, in the process of changing my insurance broker for a
local one, I mentioned that I make stuff in the garage and managed to sell a
whole whopping $100 worth of it.
The fecal matter hit the fan. To cut the long story short:
1) If I did not mention it and claimed later and this info came out they
could have denied any claims.
2) They are prepared to cover risks now but only if I "stay small". For
instance no web site and no business cards. Also they will not cover product
liability.
3) I have to weld "25 feet away from the buildings". We fought them off on
soldering!

--
Michael Koblic,
Campbell River, BC

"Pete C." wrote in message
ster.com...

Don't forget insurance either, commercial general liability, possibly
product liability since you're fabbing stuff. Your homeowner's insurance
will almost certainly be an issue. Your best bet will be to lease a
warehouse / shop bay in an industrial park which will remove a huge
number of issues vs. operating a commercial fabrication business at your
residence.

F. George McDuffee wrote:

Unless you are making megabucks and have significant deductions,
IMNSHO you are far better off staying under the radar.

Sound advice.


Jon

Ignoramus17245 wrote:

They may frown upon shenanigans such as paying oneself rent etc, and
having no income or SS paying salary. I am all for saving on taxes,
etc, but not at the cost of being flagged for an audit, or worse. A
good accountant would tell Grant what ratios to follow, etc.

An accountant will make sure HIS ass is covered first. If he
can save the customer some money, that's great, but not his
first priority. Few if any accountants will tell you this.

There are thousands upon thousands of loopholes and
deductions in the tax code. There is nothing wrong with
taking advantage of them. I advocate nothing illegal. You
seem to have an attitude that taking advantage of legal
loopholes is wrong. That's part of how people with money
accumulate and keep it. I'm not advocating trying to juggle
things to show no profit. Unearned income is not subject to
SSI. Nothing illegal or shady there. Us little guys have
just as much right to take advantage of the loopholes as the
big guys.

I asked my tax guy once if the IRS gives anyone credit for
failing to take full advantage of any and all legal
loopholes and deductions. His rely was "No, they just think
you're stupid if you don't" And, they are very happy to
accept the extra money.

Jon

Jon, I understand and respect your opinion. My own opinion is based on
certain other considerations, that I am not willing to explore here
since it is not on topic of this newsgroup.

i

On 2008-08-28, Jon Anderson wrote:
Ignoramus17245 wrote:

They may frown upon shenanigans such as paying oneself rent etc, and
having no income or SS paying salary. I am all for saving on taxes,
etc, but not at the cost of being flagged for an audit, or worse. A
good accountant would tell Grant what ratios to follow, etc.

An accountant will make sure HIS ass is covered first. If he
can save the customer some money, that's great, but not his
first priority. Few if any accountants will tell you this.

There are thousands upon thousands of loopholes and
deductions in the tax code. There is nothing wrong with
taking advantage of them. I advocate nothing illegal. You
seem to have an attitude that taking advantage of legal
loopholes is wrong. That's part of how people with money
accumulate and keep it. I'm not advocating trying to juggle
things to show no profit. Unearned income is not subject to
SSI. Nothing illegal or shady there. Us little guys have
just as much right to take advantage of the loopholes as the
big guys.

I asked my tax guy once if the IRS gives anyone credit for
failing to take full advantage of any and all legal
loopholes and deductions. His rely was "No, they just think
you're stupid if you don't" And, they are very happy to
accept the extra money.

Jon

--
Due to extreme spam originating from Google Groups, and their inattention
to spammers, I and many others block all articles originating
from Google Groups. If you want your postings to be seen by
more readers you will need to find a different means of
posting on Usenet.
http://improve-usenet.org/

On Wed, 27 Aug 2008 20:01:34 -0500, Ignoramus17245
wrote:

On 2008-08-27, Leon Fisk wrote:
On Wed, 27 Aug 2008 13:41:43 -0500, Ignoramus17245
wrote:

On 2008-08-27, Jon Anderson wrote:
Talk to an enrolled agent, you might be better off leasing
the equipment to the business. Being a lease, the cost is a
write off.

But Grant would get rental income, which he would need to report, it
is a wash.

Jon

From what Grant has said in the past his type of work has risk
involved, ie being sued. If the company owns the equipment an
unfavorable outcome from a lawsuit could easily take all the
equipment/tools that he owns.

And if the business owner mixes private and corporate business, then
his corporate veil may be pierced and personal assets taken anyway.

It takes a substantial effort to maintain enough separation. Something
that I decided is not worth doing and is unlikely to succeed, for me
(I had a corporation for appx. 10 years). My own approach is to avoid
things that could expose me to big liability.

i

It was always questionable if it would actually work as
intended. There was also "estate planning" involved, which I
understood added some more protection.

One never really knows about this kind of stuff until
actually tested by a suit. Just about everything has some
sort of liability though. If it appears that you have lots
of money, the greater are the chances someone will try and
make an issue of it (shrug).

--
Leon Fisk
Grand Rapids MI/Zone 5b
Remove no.spam for email

Jon Anderson wrote:

Talk to an enrolled agent, you might be better off leasing the equipment
to the business.
You almost certainly can't lease stuff to yourself as a sole
proprietor. From Grant's initial post, I suspect that it the
class of business he has set up.


Jon

Ignoramus17245 wrote:
On 2008-08-27, Jon Anderson wrote:

Ignoramus17245 wrote:


But Grant would get rental income, which he would need to report, it
is a wash.

Yes, I noted that, though to be precise, there is a difference
between renting and leasing. I also noted it is considered unearned
income and is taxed differently than earned income. I believe one of
the benefits is that SSI is not applied to unearned income. I've not
done it myself and so don't really know all the details, but know
several people that have. A good tax person can tell him if it's
worth doing in his case, but it is an option.

The IRS has NEVER hasseled me about no profit for several years
on end. If you are making duck decoys or fishing flys, they can
say it is just a hobby. If you are cutting metal for people,
advertising or running a web site, it makes it pretty clear you
are TRYING to make income. The business in home deduction is an
unbelievable bonus, I can't BELIEVE how much that cuts my taxes!
Totally beyond belief. Many years I consider that I have made
a significant profit, somewhere in the general neighborhood of
my "day job" salary, but when you run the numbers through the
tax forms, all the home costs (taxes, utilities, insurance) adds
up to make the business look like a big LOSS, and so I often
don't pay ANY TAXES on ALL my income - day job + investment +
home business! I can't BELIEVE they let you get away with this,
but they DO! I've been doing this for about 22 years, now, and
have gone through several different product genres, but all
small electronic manufacturing.

What I do know is that the IRS is looking for businesses to produce
cash, either as salary or dividends. They also want the owners to pay
themselves a reasonable salary (what is reasonable to them, may be a
pittance compared to market, but it should be something).

A sole proprietor can't really pay himself "salary". He can
"draw" from the till, but his money and the businesses money are
all considered the same. This is GOOD, as you have to pay
income taxes on "salary". With a sole proprietor, you only pay
once, at the end of the year, as income taxes. You don't have
to pay double the payroll tax to the IRS like when you deduct
taxes from a payroll. And be thankful, if you thing the income
tax is complicated, try out setting up a payroll tax system! it
is a TOTAL nightmare, let me tell you. I was so frustrated when
I had a part-time helper, it took me almost as long to deal with
the IRS and state paperwork as the hours he worked! ARRGHHH!
They may frown upon shenanigans such as paying oneself rent etc, and
having no income or SS paying salary. I am all for saving on taxes,
etc, but not at the cost of being flagged for an audit, or worse. A
good accountant would tell Grant what ratios to follow, etc.

There are additional taxes for the "self employed", where 50% or
more of your net income comes from the home shop. But, these
are a VERY simple flat rate, just one line on your 1040 (or one
of the attached schedules) and my tax program does it automatically.

Anyone in Grant's shoes really should cough up the money for
an enrolled agent. If they feel the money didn't save them
enough to justify, they can always go elsewhere the next
year or DIY.

I will say a good CPA is VERY helpful to set up your business
accounting system properly, show you all the forms that need to
be submitted and how to account for different classes of
expenses and income.

Jon

Jon Anderson wrote:
There are thousands upon thousands of loopholes and deductions in the
tax code. There is nothing wrong with taking advantage of them.

I was astounded to find a bunch of state loopholes (Missouri)
for anything that goes with capital equipment. Basically, any
tools, materials, upgrades, consumables, repair parts, etc. that
go on or into a piece of capital equipment are not subject to
state tax! I have a tax number (merchant and manufacturer's
exemption number, they call it here) so I don't pay tax on the
components that go into something I sell. But, apparently, as I
read the tex court rulings, if I were to buy a manual Bridgeport
and convert it to CNC for my own use, for instance, all those
parts would be tax exempt since they were an "upgrade". Don't
take this as legal advice anywhere but Missouri, but your state
may have a similar arrangement. I used to pay tax on a lot of
the stuff that didn't actually become part of the sold product,
but not anymore.

Jon

Pete C. wrote:

Exactly. If it's to be a real business and produce real income and it
isn't a simple office / computer based business, it *needs* to be housed
in a separate commercial location, i.e. industrial park suite. Once you
have a business with machines, then the insurance, zoning, OSHA, fire
code and other headaches require separation from your residence.

Well, I have a Bridgeport mill converted to CNC, a Sheldon 15"
lathe, a Pexto shear and a finger brake, a HUGE Lincoln
square-wave TIG welder, a PC board etcher, a surface mount pick
and place machine, and a laser photoplotter in my basement!
Since it is MY shop, a sole proprietorship, OSHA hasn't any
reason to poke around. (They'd most likely find stuff to
complain about, like no guards on things.) There is no way my
business could make money in an industrial park rented block
building. I'd be bankrupt in 3 months.

Jon

Richard J Kinch wrote:

Don't listen to all the scairdy-cat advice. The wheel would never have
been invented with the typical mindset about taxes and liability these
days.

If your intent is to report the honest numbers, then file the Schedule C
and 4562 for depreciation with your best honest numbers. The risk of ever
having to prove your reporting is very low.

The "hire an accountant" advice is silly, because the true cost is actually
30 times what it might appear, reflecting the chances of such backup
actually mattering in the real world.

The difference in outcomes from doing it yourself versus hiring a
"professional" is minimal, and not worth the expense. It's neurotic to
prepare the perfect income tax return, because there is no such thing to
begin with, and your amateur approximation is good enough considering the
unlikelihood of anyone ever reading your return beyond checking arithmetic.

But, DO get one of the $30 a year tax prep programs! They are
great. They have this insane "interview" mode, I turn that off
immediately and start filling out the forms. I use "Tax Cut"
but there are a few others. It handles depreciation schedules
(where this thread started) and all the important Schedule X's
that you need for a full 1040 return.

Every once in a while the IRS has a complaint about my return,
they find some bit of income I missed reporting or whatever,
they just sent a notice, and I send them a check for the usually
nominal amount. The way it has been working for the last 6 or
so years is I get nearly a full refund of all taxes paid from
the IRS, and have to send about $1500 to the state, as the
federal deductions don't help as much there. I've been doing
this for 22 years now, the last 19 or so without any accountant,
and have never been audited.

Jon

Jon Elson writes:

Since it is MY shop, a sole proprietorship, OSHA hasn't any
reason to poke around.

Niches are elements of small-scale profitability. Proper niches are bits
of the marketplace too small for bigger competitors to exploit, but
sometimes the government makes them for you, the little hermit crab toiling
away, hiding in your legal niche from the predatory regulators and other
overhead that the big boys pay dearly for.

Jon Elson wrote:

You almost certainly can't lease stuff to yourself as a sole
proprietor. From Grant's initial post, I suspect that it the class of
business he has set up.

Ah, yes, I got that one wrong.... Fellow I know that did
this was incorporated.


Jon

Jon Elson wrote:

The
business in home deduction is an unbelievable bonus, I can't BELIEVE how
much that cuts my taxes! Totally beyond belief.

Indeed, this is no hyperbole! I live in a two story, the
whole downstairs is shop space. Now, I have the water
heater, washer and dryer, and a small amount of personal
stuff stored, so we rate 40% of my rent as a business
expense, and I get a similar cut of my PG&E bill taken off.


Jon

Jon Elson wrote:

I was astounded to find a bunch of state loopholes (Missouri) for
anything that goes with capital equipment. Basically, any tools,
materials, upgrades, consumables, repair parts, etc. that go on or into
a piece of capital equipment are not subject to state tax!

I shall be inquiring about this one! I suspect Kalifornia
doesn't have this one, but never hurts to ask. Thanks!


Jon

Jon Elson wrote:

There is no way my business could make money in an
industrial park rented block building. I'd be bankrupt in 3 months.

In the same boat here. Manual and CNC knee mills, Hardinge
manual chucker, Hardinge w/Omniturn, Roll-in saw, drill
press, MIG welder, 3 roll aways, three Lista/Vidmar
cabinets, several other shelving/cabinets, 4x8' workbench,
and lots of other stuff in less than 900sq/ft.
I live on a short dead end road. PG&E right of way for 60KVA
transmission lines on one side, landlord's property on the
other. House above me is landlords also, never had a
complaint from anyone living there, and that's the only
place close enough for me to worry about.
Landlord built this place in the 60's with the downstairs
intended to be shop space. He used to make repro Model T
parts here, and thinks it's really cool I'm using it as a
shop too. Shop and house total about 1700sq/ft and I pay
$870/month.

I'd love to go commercial, but would need to quadruple my
income to even consider it.

Jon