Small woodworking business tax question - Woodworking Talk - Woodworkers Forum

Reply
 
Thread Tools Display Modes
post #1 of 28 Old 01-22-2016, 10:40 PM Thread Starter
Junior Member
 
Join Date: Nov 2013
Posts: 26
View Liebertron's Photo Album My Photos
Small woodworking business tax question

I*am on the verge of turning my woodworking hobby into a small business. There is one thing holding me back... I need a truck as I am not interested in doing all the work arounds I typically do to get wood home... its just not going to happen if I start a small business.


Has anyone had any experience starting a small business and writing off a truck? I have done a good amount of research and it seems I can deduct a small amount but was disappointed I couldn't deduct a large portion. Maybe my expectations were too high.*


It seems I can deduct the depreciation, interest paid, but cant write it off as a piece of equipment, though it will be used to haul lumber.


Thoughts? Help? Experience here?
Liebertron is offline  
Sponsored Links
Advertisement
 
post #2 of 28 Old 01-22-2016, 10:58 PM
Senior Member
 
hwebb99's Avatar
 
Join Date: Nov 2012
Posts: 2,881
View hwebb99's Photo Album My Photos
Quote:
Originally Posted by Liebertron
I*am on the verge of turning my woodworking hobby into a small business. There is one thing holding me back... I need a truck as I am not interested in doing all the work arounds I typically do to get wood home... its just not going to happen if I start a small business. Has anyone had any experience starting a small business and writing off a truck? I have done a good amount of research and it seems I can deduct a small amount but was disappointed I couldn't deduct a large portion. Maybe my expectations were too high.* It seems I can deduct the depreciation, interest paid, but cant write it off as a piece of equipment, though it will be used to haul lumber. Thoughts? Help? Experience here?
You have to use a vehicle for X percentage for business use before you can write it off. A small business is unlikely to reach that. You can claim mileage and possibly a small percentage of the truck, but not the whole thing.
hwebb99 is offline  
The Following User Says Thank You to hwebb99 For This Useful Post:
Tennessee Tim (01-22-2016)
post #3 of 28 Old 01-22-2016, 11:12 PM Thread Starter
Junior Member
 
Join Date: Nov 2013
Posts: 26
View Liebertron's Photo Album My Photos
What if I buy a cheap truck and just use it for business?
Liebertron is offline  
post #4 of 28 Old 01-22-2016, 11:23 PM
Sawing against the Wind
 
Tennessee Tim's Avatar
 
Join Date: Dec 2010
Location: God's beautiful hills of Middle Tennessee
Posts: 1,753
View Tennessee Tim's Photo Album My Photos
It's best to talk to a CPA on the regs for your area also. There are business, sales, personal property, IRS taxes to name a few....then you may have state, federal, local taxes....they tax ANYTHING they can think of...there's even one on the insurances we pay....If I'm not mistaken, the state of TN gets 3% of my Workers Comp premium as a tax....I found that out accidently searching a WC regulation....AND they still don't have enough money to keep us out of debt....they need to operate under the rules they apply to us..LOL!!!

Have a Blessed and Prosperous day in Jesus's Awesome Love, Tim
.......... http://www.tsmfarms.com .......... John 3:16-21 ..........
Reveling God's awesome beauty while creating one of-a-kind flitches and heirlooms.
Tennessee Tim is offline  
post #5 of 28 Old 01-22-2016, 11:25 PM
Moderator
 
Steve Neul's Avatar
 
Join Date: Sep 2011
Posts: 18,234
View Steve Neul's Photo Album My Photos
If you buy a new truck you will have to depreciate it out. If you buy an old used truck for not a lot of money you can write the entire thing off that year. It might even be beneficial to depreciate the old truck out too. If you have a lot of start up cost this year you may have enough deductions already and if you depreciate it out you can write some that cost off next year when you might be making more money. I don't see that it matters just how much you use a vehicle for business. I use my van for some personal use. I don't claim any mileage either. I keep receipts for every drop of gas I put in it and any maintenance or repairs it gets. If the truck was considered a personal vehicle and used for business once in a while that would be a different story.

If it is the nature of your business to work at someone's house or away from your shop you might consider buying a van. I used to use a pickup and onetime when I was needing a vehicle I could only find a van. Now I wouldn't use anything else. You haul lumber you don't have to worry about getting caught in the rain or you go to the lumber company on the way to a jobsite to pick up something you need and you don't have to worry so much about someone stealing tools out of the back of your truck.
Steve Neul is online now  
post #6 of 28 Old 01-23-2016, 07:56 AM
Senior Member
 
Join Date: Jul 2008
Location: Florida Panhandle
Posts: 9,280
View GeorgeC's Photo Album My Photos
Quote:
Originally Posted by Tennessee Tim View Post
It's best to talk to a CPA on the regs for your area also. There are business, sales, personal property, IRS taxes to name a few....then you may have state, federal, local taxes....they tax ANYTHING they can think of...there's even one on the insurances we pay....If I'm not mistaken, the state of TN gets 3% of my Workers Comp premium as a tax....I found that out accidently searching a WC regulation....AND they still don't have enough money to keep us out of debt....they need to operate under the rules they apply to us..LOL!!!
Completely agree with talking to CPA. Do not start the business without talking to one, regardless of the truck buy. There are many, many things he/she will tell you.

You may not need a full time CPS, but you need a relationship with one.

George
GeorgeC is online now  
post #7 of 28 Old 01-23-2016, 08:33 AM
Senior Member
 
mengtian's Avatar
 
Join Date: Nov 2012
Posts: 1,377
View mengtian's Photo Album My Photos
Don't forget that the truck is now going to be considered commercial of business use. Youe existing carrier will let you know. But it is best to be up front with them before there is an accident. SOme insurance companies consider delivering pizza's commercial and therefore unacceptable for a personal auto policy.
mengtian is offline  
post #8 of 28 Old 01-23-2016, 09:12 AM
Senior Member
 
Rebelwork's Avatar
 
Join Date: Jan 2012
Location: Odessa,MO
Posts: 888
View Rebelwork's Photo Album My Photos
I write the mileage off each year but not all of it. A percentage. I've never wrote the truck itself.

Small business from home or do you intend to rent a space?

Last edited by Rebelwork; 01-23-2016 at 09:14 AM.
Rebelwork is offline  
post #9 of 28 Old 01-23-2016, 09:43 AM
Senior Member
 
Join Date: Jul 2014
Location: WNC
Posts: 224
View UnisawGuy's Photo Album My Photos
The best advice is to talk to a CPA who does federal taxes. Having a CPA do your taxes is the best insurance you can get.
UnisawGuy is offline  
post #10 of 28 Old 01-23-2016, 09:59 AM
Senior Member
 
Join Date: Aug 2009
Posts: 164
View 2lim's Photo Album My Photos
My father is a CGA and I just made the same step that you did, only my business is full time.

Here is the long and short:

You can write off the value of the truck, based on it's useable time. So you must depreciate it, and write off a portion of it's value every year, until it holds no real value.

You can write off a portion of the expenses incurred by said truck, based on how much you use it for the business. If you have a personal vehicle aside from the truck, and the truck is ONLY for business use, then you can write off all of the gas, repairs, and insurance costs associated with the business. If you use the truck for personal use also, then you are supposed to log mileage for business use, and write it off proportionally. I personally have a separate vehicle for myself, so my van expenses are 100% write off.

You will be required to obtain commercial insurance on your vehicle, and will need to register your vehicle as such(in ontario anyways). This means registering a GVWR that you cannot exceed, and if you exceed 4400kg, then you are subject to yearly safety inspections(again, in Ontario).


The essential reasoning behind the depreciation and such, is that you spent all the money right now, but the value of that money is being used potentially for years, so you write it off as you use it. Certain large equipment purchases must be depreciated also. The typical "line in the sand" is around the 500$ mark for a single item. I know it sounds silly, but technically if you buy a tablesaw, bandsaw, planer, anything like that, you have to depreciate it's value over it's useful life.

Another reason to go talk to a licensed accountant, is that you can write off some of the value of currently held assets that were purchased prior to starting the business. For example, if you have a shop full of tools that were collected when it was a hobby, you can bring those into the business, and write off a portion of their value too!

I hope this wasn't too long to read through. You still need to see an accountant, but hopefully this primed you for what to expect!

Simon
2lim is offline  
post #11 of 28 Old 01-23-2016, 11:08 AM
Senior Member
 
Rebelwork's Avatar
 
Join Date: Jan 2012
Location: Odessa,MO
Posts: 888
View Rebelwork's Photo Album My Photos
Running a small shop from home isn't that complicated but its not going to pay for your truck. Eventually you will have to show profit. I've been running my home cabinet shop for over 10 years legally but you still need profits. Yes I do have a business ID. number.

It's very difficult to take a hobby and turn it into a business to pay for it and not get caught....
Rebelwork is offline  
The Following User Says Thank You to Rebelwork For This Useful Post:
Tennessee Tim (01-23-2016)
post #12 of 28 Old 01-23-2016, 01:57 PM
Senior Member
 
NickDIY's Avatar
 
Join Date: Jul 2015
Location: Pennsylvania, USA
Posts: 435
View NickDIY's Photo Album My Photos
I'll add that if you lease a truck, you can likely expense almost all of the payment & mileage directly.

Intuit has a really good article here about company vehicles.
NickDIY is offline  
post #13 of 28 Old 01-24-2016, 01:05 PM
Senior Member
 
RJweb's Avatar
 
Join Date: Feb 2011
Posts: 230
View RJweb's Photo Album My Photos
Having been in my own business for over 50 years, wall coverings and painting, my advice is to hire a good accountant that would answer all your questions. Good luck in your venture.
RJweb is offline  
post #14 of 28 Old 01-24-2016, 04:21 PM
Senior Member
 
MT Stringer's Avatar
 
Join Date: Jul 2009
Location: Channelview, Tx
Posts: 2,325
View MT Stringer's Photo Album My Photos
When I was doing sports photography, I kept a mileage log. My planner had my schedule in it and that is where I recorded the mileage. I recorded the mileage on the truck at the first of the year and at the end...for four years.

That was all my CPA needed. He took care of the rest.
MT Stringer is offline  
post #15 of 28 Old 01-25-2016, 05:30 PM
Senior Member
 
Tony B's Avatar
 
Join Date: Jul 2008
Location: Full time cruising on my boat. Currently on the Tenn. River in NW Alabama in Jo
Posts: 2,702
View Tony B's Photo Album My Photos
When I had my woodworking business, I always had between 16-24' box trucks. Obviously, they were used for business only. I had always bought them somewhere around 8-12 years old in very good condition. I also always had a CPA doing my taxes and unquestionably, it always worked out better claiming initial cost, maintenance and insurance. I was running about 400 miles/ month. My last business I sold in 2013.
My suggestion would be to keep meticulous records of the truck including mileage. Then let the CPA tell you which way to go.

Tony B



Retired woodworker, amongst other things, and now full time cruising the waterways on my boat.
Tony B is offline  
post #16 of 28 Old 01-25-2016, 05:38 PM
Senior Member
 
Join Date: Feb 2011
Location: Saxonburg
Posts: 216
View gmcsmoke's Photo Album My Photos
A CPA is a Certified Public Accountant. you need to find a CPA specializing in small business taxes just because someone is a CPA doesn't mean they are an expert in small business taxation.
gmcsmoke is online now  
post #17 of 28 Old 01-26-2016, 08:46 AM
Senior Member
 
Tony B's Avatar
 
Join Date: Jul 2008
Location: Full time cruising on my boat. Currently on the Tenn. River in NW Alabama in Jo
Posts: 2,702
View Tony B's Photo Album My Photos
Quote:
Originally Posted by Liebertron View Post
What if I buy a cheap truck and just use it for business?
You can either go the depreciation/maintenance route or the mileage route - but not both.

If you are going to put on a lot of miles the mileage route would probably suite you best.
With an older truck, the maintenance route might be best. With this option you deduct insurance, tune-ups, repairs, oil changes etc.
Once you select which option you want it would be difficult to change that status with the IRS so give it some thought.

Trying to keep straight with the IRS is not easy if you happen to get audited. They are very reasonable but dont try to fool them. If for example, you buy a used older Box Truck, say from Budget Rentals, no one will challenge you that it is strictly a business vehicle. On the other hand, if you get a standard P/U that can also be used as a personal vehicle, could lead to future problems. Probably not, but could.. Personally, depending on the type of woodworking business, a utility van like a Ford Econoline might be a better good choice.

If you plan to use the truck occasionally for personal business, then you would be safest by claiming mileage and keeping records of business miles and personal miles.

If you are doing this as a part-time business for the sake of getting a tax break, it isnt worth it.

Tony B



Retired woodworker, amongst other things, and now full time cruising the waterways on my boat.
Tony B is offline  
post #18 of 28 Old 01-26-2016, 02:43 PM
Total Novice
 
Join Date: Jun 2015
Location: Grants Pass OR
Posts: 67
View GuitarPhotographer's Photo Album My Photos
Be aware that the IRS is very suspicious of hobbies being "converted to business" primarily for a tax advantage. They expect you to have substantial assets at risk and that you should make a profit at least one year in five. Also expect to be audited if your expenses greatly exceed your income, that's a big red flag with the IRS. Ask me how I know these things ;-)
GuitarPhotographer is offline  
post #19 of 28 Old 01-28-2016, 12:47 AM
EdS
Senior Member
 
EdS's Avatar
 
Join Date: Mar 2013
Location: Houston, Tx
Posts: 167
View EdS's Photo Album My Photos
I think 2lim has given you some sound advice. The number 1 reason for audits has long been home based businesses, that is because it is so hard to quantify the percentage of an asset being used for business vs personal use. I would use a CPA and hope that the advice you get would keep you in compliance with the law, it would be easy to stray outside the law without knowing you were doing so.
EdS is offline  
post #20 of 28 Old 01-28-2016, 12:58 AM
Senior Member
 
Tony B's Avatar
 
Join Date: Jul 2008
Location: Full time cruising on my boat. Currently on the Tenn. River in NW Alabama in Jo
Posts: 2,702
View Tony B's Photo Album My Photos
Quote:
Originally Posted by EdS View Post
..... The number 1 reason for audits has long been home based businesses, that is because it is so hard to quantify the percentage of an asset being used for business vs personal use..........
Keep in mind that if you are declaring one room in your home as an office and take the appropriate deductions, it MUST look like an office and used as NOTHING else. That means even a small TV set or a kids toy can disqualify you.
Another thing to consider with a home business is say for instance you declare 1 room as an office which is 20% of your total home square footage, if you sell your home and make a profit on the home, 20% of that profit must be claimed as the business profit. It can get complicated. If you declare your garage as your shop, better not have any home stuff stored in it or even park your car in it.

Just because you know other people getting away with it, dont mean you will.

Tony B



Retired woodworker, amongst other things, and now full time cruising the waterways on my boat.
Tony B is offline  
Reply

Quick Reply
Message:
Options

Register Now



In order to be able to post messages on the Woodworking Talk - Woodworkers Forum forums, you must first register.
Please enter your desired user name, your email address and other required details in the form below.

User Name:
Password
Please enter a password for your user account. Note that passwords are case-sensitive.

Password:


Confirm Password:
Email Address
Please enter a valid email address for yourself.

Email Address:
OR

Log-in









Human Verification

In order to verify that you are a human and not a spam bot, please enter the answer into the following box below based on the instructions contained in the graphic.



Thread Tools
Show Printable Version Show Printable Version
Email this Page Email this Page
Display Modes
Linear Mode Linear Mode



Similar Threads
Thread Thread Starter Forum Replies Last Post
Pros and Cons of Woodworking with Manual Tools WoodworkingTalk Featured Topics 81 03-20-2016 05:55 AM
Woodworking fixture plans. Al B Thayer Classifieds 8 01-21-2016 10:39 AM
Question for joining small pieces of wood! Help please! bulletshell13 Joinery 12 09-24-2015 04:54 PM

Posting Rules  
You may post new threads
You may post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

 
For the best viewing experience please update your browser to Google Chrome