tax deductions

[clnh]

What is the name of your state (only U.S. law)?

New Hampshire,

In Sept. 2009 I purchased some new dive gear and a boat. Shortly after, I found myself doing some marine salvage and recovery work for friends and customers. I have decided that I want to form a company and sell my services to the general public. My question is this.... If I form a company in Jan 2010 can I deduct the equipment purchases I made in 2009 prior to actually being incorporated? I don't know if it matters or not but, I do have income that I plan on declaring for 2009 which is directly related to this type of work.

clnh

 

[LdiJ]

What is the name of your state (only U.S. law)?

New Hampshire,

In Sept. 2009 I purchased some new dive gear and a boat. Shortly after, I found myself doing some marine salvage and recovery work for friends and customers. I have decided that I want to form a company and sell my services to the general public. My question is this.... If I form a company in Jan 2010 can I deduct the equipment purchases I made in 2009 prior to actually being incorporated? I don't know if it matters or not but, I do have income that I plan on declaring for 2009 which is directly related to this type of work.

clnh

Unless you had enough income in 2009 (which you placed the boat in service) to 179 expense it, you would need to depreciate the boat. The dive gear most likely would need to be depreciated as well, although you might have enough income to 179 expense that.

Depreciating the boat and gear would give you a regular expense deduction over the official lifetime of the assets.

I suggest that you see a tax professional this year. Its a little tricky to handle depreciation on your own.

 

[clnh]

Thanks for the reply but I do have another question with regard to this situation. Does the answer I was given still hold true since NH states that

QUOTE: " A person conducting business under any name other than his/her own legal name must register. For example, John D. Smith doing business as "John D. Smith" does not have to register; however, if he conducts business as "John Smith Enterprises" he does have to register as "Enterprises" is not part of his legal name."
Taken from; N.H. Department of State, Corporate Division; Frequently Asked Questions

So if I did the work as myself and invoiced the customers as myself, why wouldn't I be allowed the full deduction?

 

[anteater]

Whether you have to register your business with the state or not is irrelevant for income tax purposes.

 

[LdiJ]

Thanks for the reply but I do have another question with regard to this situation. Does the answer I was given still hold true since NH states that

QUOTE: " A person conducting business under any name other than his/her own legal name must register. For example, John D. Smith doing business as "John D. Smith" does not have to register; however, if he conducts business as "John Smith Enterprises" he does have to register as "Enterprises" is not part of his legal name."
Taken from; N.H. Department of State, Corporate Division; Frequently Asked Questions

So if I did the work as myself and invoiced the customers as myself, why wouldn't I be allowed the full deduction?

It doesn't matter if you did business as yourself, as a corporation, as an LLC or anything else. The tax rules remain the same.

Fixed assets (assets that your business enterprise will use for more than one year) can be fully expensed in one year under section 179, but only if you have enough income that fully expensing the item will not put you in a loss position. There are other rules as well, but those rules don't apply to you at this point, so I won't go over them.

If you do not qualify to fully expense them under section 179, then you must depreciate the items. That means instead of getting to fully expense them in the first year, you expense them over the lifetime of the item.

You also have some little snags to deal with (which are resolveable) because you purchased the items individually in 2009, apparently made some money with them in 2009, but aren't forming your company until 2010.

These issues, plus your previous question, make it clear that you really do need to be working with a tax professional.

 

[HappyWanderer]

You can take as much 179 deduction as described above. However, you can take a partial 179 on any asset. For example (very simplified), boat cost $100 and you have $50 in net income. You can elect to take the expense for $50 and depreciate the other $50 of the boat.

 

[LdiJ]

You can take as much 179 deduction as described above. However, you can take a partial 179 on any asset. For example (very simplified), boat cost $100 and you have $50 in net income. You can elect to take the expense for $50 and depreciate the other $50 of the boat.

While this is true, he obviously has other expenses as well. Therefore its really best if he gets advice from a local professional who can review all of his numbers.

 

[HappyWanderer]

I agree he should see someone (as there are other requirements as well), but that's why I used the term "net".

 

[LdiJ]

I agree he should see someone (as there are other requirements as well), but that's why I used the term "net".

Many laymen have absolutely no idea what "net" means...LOL.

You wouldn't believe how many times I have had to explain to someone who wants to collect child support from their ex, that 100,000 in gross income, if you are self employed, does not mean that they "make" 100,000. When I have tried to use terms like Gross and Net, their eyes glaze over.