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Last year, we bought a bunch of equipment and expensed it. I filed the receipts and invoices just like I normally would.
After doing some reading, I realized it would be better for us to capitalize the purchases, rather than expense them and take a 179 deduction. A 179 deduction allows business owners to depreciate 100% of their equipment purchase in the same year they buy it. If you spend 20k on furniture in 2013, you can expense 100% of it on your 2013 taxes, instead of depreciating it over the course of years. You can also carry the deduction forward to next year if you aren't yet profitable this year. For us, the tax implications were exactly the same, but the 179 left us with much higher net profits on the books, which is important to us since we want to sell eventually.
My mistake last year? Not keeping a file/list of items that could have been eligible for 179 deductions throughout the year. Instead, I sat there in December trying to remember what equipment I had purchased in March. We keep records of all invoices, checks and receipts, but remembering every item and then going through all of those files was a waste of time. Also, I am sure I forgot a number of items.
This year, when I make an equipment/179 eligible purchase:
1. File one copy as I normally would
2. Make another copy and throw it into a "179 file" for my accountant.
At the end of the year all I will have to do is hand it over it to my accountant, who will tell our bookkeeper which items should remain expensed and which items should be capitalized.
Deciding whether it is best to 179 or expense your equipment is for you and your accountant, and there are a lot of factors to consider. However, having the organization and control to even have that choice is up to us as business owners.
After doing some reading, I realized it would be better for us to capitalize the purchases, rather than expense them and take a 179 deduction. A 179 deduction allows business owners to depreciate 100% of their equipment purchase in the same year they buy it. If you spend 20k on furniture in 2013, you can expense 100% of it on your 2013 taxes, instead of depreciating it over the course of years. You can also carry the deduction forward to next year if you aren't yet profitable this year. For us, the tax implications were exactly the same, but the 179 left us with much higher net profits on the books, which is important to us since we want to sell eventually.
My mistake last year? Not keeping a file/list of items that could have been eligible for 179 deductions throughout the year. Instead, I sat there in December trying to remember what equipment I had purchased in March. We keep records of all invoices, checks and receipts, but remembering every item and then going through all of those files was a waste of time. Also, I am sure I forgot a number of items.
This year, when I make an equipment/179 eligible purchase:
1. File one copy as I normally would
2. Make another copy and throw it into a "179 file" for my accountant.
At the end of the year all I will have to do is hand it over it to my accountant, who will tell our bookkeeper which items should remain expensed and which items should be capitalized.
Deciding whether it is best to 179 or expense your equipment is for you and your accountant, and there are a lot of factors to consider. However, having the organization and control to even have that choice is up to us as business owners.
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