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Lukacs Property Maintenance
03-16-2009, 04:45 PM
Hey guys,

Have a question for you all. How important is equipment depreciation and how do you calculate it. As an example how would i calculate the depreciation of my John Deere 125 lawn tractor. It is about 1 year old.

I don't know how this factors into the books.

Mike

Any help is greatly acepted. Thanks

justin_time
03-16-2009, 05:40 PM
I think it's 30%.. not sure tough

picframer
03-16-2009, 06:01 PM
Genrerally Accepted Accounting Principals for Computers and Equipment is 20% per year.

swstout
03-16-2009, 06:25 PM
This might help.
https://www.ird.govt.nz/cgi-bin/form.cgi?form=depnrates

Steve

Little's
03-16-2009, 07:20 PM
My tax person told me here in CA. the dep. is the value spread over 5 years.

Lukacs Property Maintenance
03-17-2009, 05:52 PM
anyone else from Canada have any more things to add about depreciation?

Mike

picframer
03-17-2009, 06:33 PM
anyone else from Canada have any more things to add about depreciation?

Mike

What other things would you like to know? I have my MBA and am a CGA, will answer your questions if you can be a little more specific.

Deprecation is used to reduce the tax your company may have to pay, falls below the line as a non cash item, when looked at by a financing company.

For a company that is or even a company that is not making money it is very important to report as you can carry forward tax loss(s) or offset profit.

Steve
03-18-2009, 04:14 AM
For a company that is or even a company that is not making money it is very important to report as you can carry forward tax loss(s) or offset profit.

I think this is a very important concept that is not widely understood. Could you tell us a little about what that means? How does that help the average lawn care business owner?

Also for the new lawn care business owner what is equipment depreciation?

picframer
03-18-2009, 05:46 AM
I think this is a very important concept that is not widely understood. Could you tell us a little about what that means? How does that help the average lawn care business owner?

Also for the new lawn care business owner what is equipment depreciation?

As always it is best to contact an accountant in your area who knows your Provincial or State tax rules, here is a general explanation that would fit pretty much anywhere in North America, quite often you will read in a financial statement they were prepared with generally accepted accounting principals, again generally speaking.

Our governments basically set the tax rules at the Feredat level then the province or state will piggy back onto that rule, for example if the Federal Government here were to tax you at 20% on profits, in Nova Scotia the Provincial Government would tax you on the amount owing to the Federal Government, this is your total business tax.

When we buy a piece of equipment, generally speaking one can write off any amounts $500.00 or less at 100% in the year they were purchased anything above that it is generally accepted that a piece of equipment has a life of five years (not to be confused with how many years you can get out of that piece), thus you can reduce your business income by 20% of the purchase price, less any tax you paid until the full value is NIL, this same rule is used by most companies that trade on the exchanges.

Every company has a balance sheet, this lists amoung other things Capital assets and owners contributions. In year one the purchase price less sales tax is shown at the full value of the item until the company year end at which time you depreciate and record depreciation, we consider it a non cash journal entry if you will however it reduces your company income and thus the taxable income, if you record a loss you can carry it forward to future years profits.

I don't want to get complicated but tax losses are sometimes sold to companies that have very large profits, when I worked in gold exploration we had no income, we were funded by shareholders and new shareholders, our tax loss(s) were in the millions per year, we could sell these to for example a mining company that had large profits, not a 100% but at a %.

In our case if we had tax loss(s) and I am not sure what the rules are in the USA, it is considered an asset and the purchasing company would pay an amount for those loss's as they can apply them towards profits.

So in summary the reason for all this is it's required book keeping and should you ever go for financing, if it is not present it could show that one is not keeping proper accounting records.

Andy

Steve
03-18-2009, 08:22 AM
This is great stuff!

it reduces your company income and thus the taxable income, if you record a loss you can carry it forward to future years profits.

What does that mean to the average lawn care business owner?

Can you help me with an example to better explain it?

Say my lawn care business just started up and I spent $15,000 in expenses for marketing or other things I needed to get going. But I only made $10,000 in income, I lost $5,000 my first year. How does having a loss help me in the future years?

Also, does the 5 year depreciation cover vehicles and trailers?

Do you have any thoughts on when it is better to buy vs. lease equipment. Or lease and then buy at the end of the lease?

picframer
03-19-2009, 04:51 AM
What does that mean to the average lawn care business owner?

Basically you are required by law to keep proper records and accounting, if you are ever subjected to an audit then you have everything and when an auditor sees your records are in good order they don't have to dig, hand them a box of paperwork and that is another story, same deal should you decide to sell your company, your records should be in good order.

Can you help me with an example to better explain it?

Say my lawn care business just started up and I spent $15,000 in expenses for marketing or other things I needed to get going. But I only made $10,000 in income, I lost $5,000 my first year. How does having a loss help me in the future years?

It depends, if you spent $15,000 to get started how much was equipment or a capital asset over $1,000.? If it was all under and marketing then you would have a $5,000 loss in the first year, lets say in the second year you made $20,000 and your expenses were $10,000 that gives you a $10,000 profit less your previous years loss of $5,000 so your taxable income is $5,000. Not 100% about the USA however here you can carry forward a loss for as long as the company is in business.

Using the above example you made $20,000 but spent $25,000 in operational costs, then your carry forward tax loss for year three is $10,000.


Also, does the 5 year depreciation cover vehicles and trailers?

Depreciation is any Capital item, this includes among other things all vehicles and equipment over $1,000

Do you have any thoughts on when it is better to buy vs. lease equipment. Or lease and then buy at the end of the lease?

Personally I do not like leasing, I think it is good for a new company that can not obtain credit however you really take a beating on the payout at the end of the lease. It is probably the same there, in Canada you get all of your sales tax back for operational and capital expenses every quarter, in a lease you do not pay sales tax up front, it is amortized over the term of the lease, this is another lease payments are lower than a loan.

Steve
03-19-2009, 05:06 AM
Oh thank you!

When I am asking about carrying over a loss. I guess what I mean is if I had an operational loss the previous year of $5,000 say, and this year I bring in $25,000.

I can offset that $25,000 by subtracting the previous years loss of $5,000, effectively making my taxable income $20,000? So ultimately I pay less taxes this year because of a previous year's loss?

picframer
03-19-2009, 06:34 AM
Oh thank you!

When I am asking about carrying over a loss. I guess what I mean is if I had an operational loss the previous year of $5,000 say, and this year I bring in $25,000.

I can offset that $25,000 by subtracting the previous years loss of $5,000, effectively making my taxable income $20,000? So ultimately I pay less taxes this year because of a previous year's loss?

That is 100% correct

Lukacs Property Maintenance
03-23-2009, 07:07 PM
Thanks guys,

It makes more sence now.

Mike