Your LLC will probably have to depreciate the tractor because it has a useful life of more than one year and it's over the de minimis amount. A quick Google search shows that it's either 5 year or 7 year.
Basically, that means that you would take the $100K price of the tractor and the business would be able to take depreciation expense of $100K / 5 = $20K or $100K / 7 = ~$14K each year for the next five to seven years. Depreciation spreads the business expense out over the useful life of the item.
Because you probably bought the item mid-year, you have to prorate the first and last year, so it will actually be depreciated across six or eight tax years. But that's pretty simple math that the CPA or the tax software will do.
If you have other capital expenses for equipment, those similarly will need to be depreciated.
Items can be depreciated on different schedules. Residential buildings are 27.5 years. Websites are 3 years. The business must depreciate each item individually.
The above is all "straight line" depreciation, which is the simplest to understand. There are other methods, most of which seem aimed at accelerating the depreciation into earlier years. Whether your business can use any of these methods is up to you and the business' CPA to determine.
But another key point - the depreciation is a business expense, which will offset business income. If the business has a net loss in any given tax year, the IRS has rules - which I'm not very familiar with - about whether and how much you can subtract from your personal income. At the very least, you need to be trying to make a profit in order to write off a loss - if it's a money losing hobby farm then you can't use the loss on your personal return. See https://www.irs.gov/newsroom/know-the-d ... a-business for example.
Basically, that means that you would take the $100K price of the tractor and the business would be able to take depreciation expense of $100K / 5 = $20K or $100K / 7 = ~$14K each year for the next five to seven years. Depreciation spreads the business expense out over the useful life of the item.
Because you probably bought the item mid-year, you have to prorate the first and last year, so it will actually be depreciated across six or eight tax years. But that's pretty simple math that the CPA or the tax software will do.
If you have other capital expenses for equipment, those similarly will need to be depreciated.
Items can be depreciated on different schedules. Residential buildings are 27.5 years. Websites are 3 years. The business must depreciate each item individually.
The above is all "straight line" depreciation, which is the simplest to understand. There are other methods, most of which seem aimed at accelerating the depreciation into earlier years. Whether your business can use any of these methods is up to you and the business' CPA to determine.
But another key point - the depreciation is a business expense, which will offset business income. If the business has a net loss in any given tax year, the IRS has rules - which I'm not very familiar with - about whether and how much you can subtract from your personal income. At the very least, you need to be trying to make a profit in order to write off a loss - if it's a money losing hobby farm then you can't use the loss on your personal return. See https://www.irs.gov/newsroom/know-the-d ... a-business for example.
Statistics: Posted by secondcor521 — Fri Sep 13, 2024 11:02 pm — Replies 3 — Views 210