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Taxes: How expensive must a tool be for YOU to depreciate it?

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  • Taxes: How expensive must a tool be for YOU to depreciate it?

    This apparently is somewhat discretionary, though I know some people depreciate things costing only a couple of hundred. I usually don't do it for items under $1000, and since I build my own computers there's no single part that's over $200 ever. Could you imagine how long that list would be for your average shop if it was under $500?

    Any comments?

  • #2
    Don't depreciate anything you can expense. You should be able to expense anything under a $1000. When you expense something you deduct the entire amount the year you bought it.

    Edit I misread your post, I originally thought you might not know you could expense something rather than depreciate it. Sorry for the misunderstanding. I expense everything under a $1000.
    Last edited by Tyro 001; 03-26-2009, 09:09 PM.


    • #3
      Just went over this with the accountant. Tis the season. As previously stated you generally want to expense everything you can versus depreciating it. Several ideas though for over $1K. Try to split the invoice, put money down and pay off the balance on delivery so that both bills hopefully are under the magic number. If not try to get one under $1K. Split the payment across the calendar year (December 31st, Jan 1st)and it is harder to follow. If the tooling or your case computer parts can be justified, write it off as Cost of Goods Sold for one job even though it is over $1K. Working with chemicals, biologicals etc, my accountant took the stance and actually convinced the IRS that my tools are a liablity and not an asset. The tools must be decontaminated and disposed of at the end of their life cycle if contaminated. I am the one who determines what needs to go. This only took two plus years to get in writing. My accountant is pretty conservative and these are her ideas.



      • #4
        Depreciation rates vary with the type of purchase.
        As a rough guide...

        Computer software 100% (no resale value)
        Computer hardware 50% purchase price per year (quick obsolescence)
        Shop equipment 10 - 20%(?) declining value (long life, relatively high resale)
        Automobiles, trucks, farm equipment +/- 30% declining value per year (short life moderate decline in resale value)

        YMMV, I hire someone else to do my taxes...
        Design to 0.0001", measure to 1/32", cut with an axe, grind to fit