Re: Contractor spent too much in 2007! Help!!!

On Mon, 14 Apr 2008 14:01:29 -0400, "Paul Thomas, CPA"
<paulthomascpapc@xxxxxxxxxxxxx> wrote:

There's not a lot. If I was still in the process of pulling the business
together in December for a January opening, then there's no question that
the equipment, bought in 2007, wasn't placed "in use" till 2008. If I was
installing a new production line at the existing factory, but production
hasn't yet begun, then it's not placed in service till we fire up the line
for production (even though we test run the mashines.)

I suppose the folks at the IRS aren't complete morons, so if I buy a copier
in October, it'll be a hard sell to convince them that I didn't place the
machine in service till 2008, but if I bought it on December 30th, it's
possible that it didn't get used till January 2nd.

These were all early to mid-year purchases... commissioned, fueled,
run and available for service before or during my peak season. Some
were even trailered out to one of my jobsites in anticipation of work
that was ultimately postponed and later cancelled. No shenanigans at
all there. But if the criteria is "did that equipment produce revenue
during 2007" then the answer is no... and I will not depreciate or
Section 179 that stuff for 2007. I will depreciate it starting in
2008 and beyond (i.e., when it starts producing revenue).

Related to this: Because my fixed and variable operating expenses
alone (insurance, advertising, fees, fuel, repairs, etc.) exceeded my
entire business revenue for 2007, it sounds like I should "Section
179" every possible depreciable equipment purchase I made so that no
actual equipment depreciation at all is showing up on my 2007 return.

Then Section 179 isn't available to you.

I am speaking of the stuff that was bought and *was* used to produce
revenue in 2007. I think we are twisting meanings here. Unless the
IRS lied to me and TT is flawed in this regard, I believe I can
"Section 179" this stuff... and it just slides on into next year as
carryover (Form 4562, Part 1, Line 13). Yes, it buys me nothing for
2007... but I don't need any more deductions against revenue for 2007.
I would do this (assuming it is legal) only to retain Section 179
deductibility on this stuff for 2008 and beyond if necessary.

You need to look beyond this year AND next year to see if not having
depreciation on that equipment in year 3, 4, 5, and 6 is going to give you
the results you want. Or that you are cognizant of the implications for tax
as well as cash flow.

If you're still paying for the equipment, you'll have cash going out the
door for which there isn't a current year deduction for.

The equipment is all paid for and 2008 is going to be a most critical
(make or break) year for this business revenue-wise... so having lots
of carryover into 2008 is good. Hard to even think about 3-5 years
out, but your point is taken. Someday I've got to stop buying more
equipment and actually show a sizable net profit. I am gonna get
whacked with taxes at that point. It won't be 2008 (I've already
bought another major piece of equipment in 2008), but I can't keep
expanding my "fleet" forever.

Thanks for all your time and help!!!

Clem
.