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  1. #1
    Join Date
    Aug 2010
    Location
    Portland, OR
    Posts
    210

    Default Deducting tools on taxes

    How do you guys handle deducting a lot of small tools?

    I have about $3500 worth of tools but not one of them totals more than $500 (though several are in the $200-$500 range). And they are tools I accumulated while I was working for another GC but now that I'm on my own I want to deduct the expense(s). I made a photo inventory of all my tools and was going to assign a current fair market value for a used tool and then write that total number off as one asset.

    What do you guys do?

    thanks,
    Justin
    Builder in Portland, OR

  2. #2
    Join Date
    Jun 2004
    Location
    Martinez, California
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    14,954

    Default Re: Deducting tools on taxes

    You can expense tools only in the year of purchase, tools over a certain amount you have to set up a depreciation schedule and expanse over the useful life, the only way you can write off an asset now is to loose them or have them stolen, and even then you have to document cost, deduct depreciation, and expense the remaining value. You could set up a corporation and sell these tools to the corporation, then you could deduct the value of the tools amortizing when necessary, but of course you will have to pay the taxes on the gain in your personal return.
    “It is not an endlessly expanding list of rights —the “right” to an education; the “right” to health care; the “right” to food and housing. That is not freedom. That is dependency. Those are not rights. Those are the rations of slavery – hay and a barn for human cattle.” - Alexis de Tocqueville

  3. #3
    Join Date
    Mar 2006
    Location
    Boise, Idaho
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    3,154

    Default Re: Deducting tools on taxes

    Like Dick said, set up an SMLLC tool rental business, sell the tools to that LLC for FMV, and then rent the tools to your construction company from the LLC, again at FMV.

    You will have tool expense write-off AND passive income.
    It is a simple matter of being patient. I do patience very well, except for the waiting part. That's the one aspect of patience that still bites me.

    I'm not saying I'm Superman. What I'm saying is no one has ever seen me and Superman in the same room together.

    ParkWest Homes LLC
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  4. #4
    Join Date
    Jun 2004
    Location
    Friday Harbor, San Juan Island, Washington
    Posts
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    Default Re: Deducting tools on taxes

    Talk to your tax preparer. You may need to "sell" your tools to your business. When you acquired them you possibly could have written them off then, but it's probably too late to do it that way. In the normal course of business, small tools (under $500 or so, again talk to your tax person) are expensed completely in the year they are purchased. Larger stuff is depreciated over a period of years.
    Bailer Hill Construction, Inc. - Friday Harbor, WA
    Website - Facebook

  5. #5
    Join Date
    May 2009
    Location
    Kent UK
    Posts
    3,152

    Default Re: Deducting tools on taxes

    it tends to depend on HMRC (IRS) tax law/rules

    large value items have to be dealt with as assets that get marked down over a number of years, small value tools can be written off in the year they are bought

    edit, sounds like assets are dealt with much the same way by many states
    Last edited by Tom Bainbridge; 01-05-2011 at 02:10 PM.
    Limey Carpenter

  6. #6
    Join Date
    May 2009
    Location
    Kent UK
    Posts
    3,152

    Default Re: Deducting tools on taxes

    justinae, i see nobody has answered your actual question

    i did go through the transition you are going through a number of years ago

    my jursidiction is different, but its obvious that the english taxman sees assets and small tools in a similar manner to various north american states

    my tax advisor at the time had me draw up a list of tools and their current (at the time) market values

    some items went into assets, the rest went into small tools and were written off in the the first year
    Limey Carpenter

  7. #7
    Join Date
    Dec 2005
    Location
    Michigan
    Posts
    7,520

    Default Re: Deducting tools on taxes

    Tom, individual states don't play into this. The IRS rules are for the entire US. Dick did answer his question. He cannot do anything about tools bought in a previous year, he would have to set up a separate entity and sell those tools to another entity in order to expense or depreciate them.

  8. #8
    Join Date
    Jun 2004
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    Friday Harbor, San Juan Island, Washington
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    Default Re: Deducting tools on taxes

    It may be a wash anyway. If he has an S corp, the tax that the business saves by buying the tools and incurring the expense would probably be similar to the tax that the individual would owe on the income derived from selling the tools. You could spend more on the CPA to figure it out than you save in taxes. If I recall correctly my CPA and lawyer both advised me to put assets like this into my corporation as part of "capitalizing" it and also to avoid using personal assets for business.

    In any case, he can't lump the tools together now and write them off--that would probably be disallowed if he were audited. He could conceivably file amended returns for previous years, but that would cost far more than the tax savings on $3500 in income, unless he's a rich paper contractor like Dick.
    Bailer Hill Construction, Inc. - Friday Harbor, WA
    Website - Facebook

  9. #9
    Join Date
    Oct 2005
    Location
    Hudson Valley area of N.Y.
    Posts
    621

    Default Re: Deducting tools on taxes

    Like David said - You need to sell the tools to the business.
    You said that you are NOW in business but the tool purchase was while working for someone else. They are you personal property that you can INVEST in the new business. The same as taking personal savings and using it to start the business. The new company will be indebted to you the fair value of your investment. This money paid back is not income from the business but a loan repayment.
    Talk to an accountant

  10. #10
    Join Date
    Aug 2010
    Location
    Portland, OR
    Posts
    210

    Default Re: Deducting tools on taxes

    Thanks guys. I'm not going to create another company to sell them. Not worth the effort I think. I'll just keep better track of purchases moving forward.
    Builder in Portland, OR

  11. #11
    Join Date
    Jan 2009
    Location
    Danbury area of western CT
    Posts
    4,441

    Default Re: Deducting tools on taxes

    Justin, why didn't you take the tools as a deduction when you bought them. I have always expensed tools going all the way back to 1984. As a mechanic I bought tools while working for someone else, they were still deductible.
    From now on, only buy tools through your company, save the receipts and catalog everything. Remember, too, that saw blades and other "consumables" can be expensed to individual jobs.

    If you are doing your taxes yourself, you should be using TurboTax Home and Business. The software has all the explanations in it to help you understand what's deductible and what's not. If you don't yet have a credit card for your business, get one and never mix/mingle work and home.

    I think the horse is already out of the barn on past tools, unless you purchased them this past year. Good luck;-)

    phil
    It's better to try and fail, than fail to try.

  12. #12
    Join Date
    Aug 2010
    Location
    Portland, OR
    Posts
    210

    Default Re: Deducting tools on taxes

    Hi Phil,

    Because I didn't intend to become a GC and I was employed as a carpenter at the time. In short, naive. But now I know and meticulously save receipts. I even record mileage every time I take a trip.

    I use TurboTax Deluxe which seems to get the job done.

    thanks,
    Justin
    Builder in Portland, OR

  13. #13
    Join Date
    Jun 2004
    Location
    Chicago
    Posts
    3,599

    Default Re: Deducting tools on taxes

    Quote Originally Posted by Dick Seibert View Post
    You can expense tools only in the year of purchase, tools over a certain amount you have to set up a depreciation schedule and expanse over the useful life,
    Generally true, however IRS section 179, to stimulate investment and jobs, allows writing off of the cost of tools immediately, rather than depreciating them, for now:

    http://www.section179.org/section_179_deduction.html

    This is a significant tax break for small business, which you can thank Obama for:

    http://www.sba.gov/content/small-business-jobs-act-2010

    It doesn't matter that you personally bought the tools a few years ago, if you now put them into your business, it goes under the owner's equity account. Essentially the same as investing cash in your business. See your tax advisor.
    Last edited by hdrider_chgo; 01-05-2011 at 09:10 PM.

  14. #14
    Join Date
    Nov 2004
    Location
    Boston, MA
    Posts
    4,807

    Default Re: Deducting tools on taxes

    Quote Originally Posted by hdrider_chgo View Post
    Generally true, however IRS section 179, to stimulate investment and jobs, allows writing off of the cost of tools immediately, rather than depreciating them, for now:

    http://www.section179.org/section_179_deduction.html

    This is a significant tax break for small business, which you can thank Obama for:

    http://www.sba.gov/content/small-business-jobs-act-2010

    It doesn't matter that you personally bought the tools a few years ago, if you now put them into your business, it goes under the owner's equity account. Essentially the same as investing cash in your business. See your tax advisor.
    Holy smokes, I have a ton of tools and equipment I could place in service...

  15. #15
    Join Date
    Jun 2004
    Location
    Martinez, California
    Posts
    14,954

    Default Re: Deducting tools on taxes

    If he expensed them when he bought them he can't expense them again (unless he sells them to a separate entity), if he's depreciating them I suppose he could expense the undepreciated portion.

    For more information on the 179 Election see the Hummer deduction.
    “It is not an endlessly expanding list of rights —the “right” to an education; the “right” to health care; the “right” to food and housing. That is not freedom. That is dependency. Those are not rights. Those are the rations of slavery – hay and a barn for human cattle.” - Alexis de Tocqueville

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