Income Taxes - 2019

Magicman · December 21, 2019, 08:58:54 AM

OK, it's much too early to be thinking about such a thing, but I am grounded by this knee thing with time on my hands, sooo.....

The farm owns the sawmill so all of the sawing income goes into that account. The farm's property taxes will be paid in January and I wonder what my CPA will think when he sees that I spent this year's sawing profits on a "new" farm tractor. :

I reconcile my income/expenses every quarter and I have not and will not have any sawmilling income since my knee surgery and the only incurred expenses was a box of blades from ReSharp and filling the Diesel cans. Since the 4th Qtr. was almost nothing, it was simple. I can put the final touches on it when December's bank statement comes in early January.

Next year has the possibility of being good because I'm carrying over about a dozen sawing jobs that were postponed by the knee surgery. I know that I will loose some of them, but the majority will remain. Also I am taking about a call a week from 'new' customers. They seem to understand my knee situation so that could potentially be another half dozen jobs to saw. Hopefully I can start calling them toward the end of January and start scheduling. You probably can tell that I am anxious. ;D

firefighter ontheside · December 21, 2019, 09:52:34 AM

What will a "new" farm tractor look like? I spent all my income from business on a "new" Kawasaki Mule.

Ed_K · December 21, 2019, 10:04:08 AM

Isn't that what your supposed to do with business profits? So you don't have to pay taxes ;). Some years I only had $23.00 of income due to repairs >:(.

stavebuyer · December 21, 2019, 10:06:04 AM

Buy it. Utility sized farm tractors used and maintained in the way you handle your equipment won't depreciate much and may appreciate if you buy a late model used one.

Magicman · December 21, 2019, 11:23:10 AM

I already bought it in mid-September: 'Nother Hoss for da Farm in General Board

firefighter ontheside · December 21, 2019, 11:29:35 AM

Good deal. When I was looking for my Kubota I saw a lot of nice priced tractors in TX.

WV Sawmiller · December 21, 2019, 01:23:45 PM

I send my income tax stuff to my accountant to do every year. All my records are on excel spread sheets so basically they are ready at any time and all I have to do is sort and autosum, then send to my tax gurus. I did sum up my income to get a rough guess about how much state sales tax I will need to pay but will update on 31 December in case I sell collect anything else between now and then.

Magicman · December 21, 2019, 02:53:10 PM

Quote from: WV Sawmiller on December 21, 2019, 01:23:45 PMAll my records are on excel spread sheets

Mine are in Excel too but I only add the income/expenses to it every quarter. That is also when I write myself a check for any incidental expenses incurred during that quarter. Did I say that I have a very simple accounting method? ;D

SawyerTed · December 21, 2019, 09:03:56 PM

Don't forget to take depreciation on the sawmill "support equipment" for the time they are used.

Even chainsaws, cant hooks and even tractors factor into depreciation. A new acquisition can provide a big benefit through depreciation.

Taking a percentage of depreciation or total depreciation in a single year depends on your situation. I think this is an overlooked tax advantage.

WV Sawmiller · December 21, 2019, 09:39:54 PM

My tax folks do any depreciation and fuel credits and such applicable when they fill out our income taxes. I keep another excel spreadsheet with my mileage and on New Years Eve I go out and write down the odometer reading on my truck for ending miles for 2019 and starting miles for 2020. I have another file/spreadsheet for history and start a new one for the new year with cumulative totals for starting balance and keep up with total sawed during the year off each job.

I'm not as savvy as the MagicMan paying myself every quarter. If there is money left it is mine to spend and if short I owe it to my business. Again, mine is mostly a cost neutral hobby and if/when I get ahead I buy something else I need for the mill work.

Magicman · December 21, 2019, 10:12:35 PM

No, I do not pay myself, I reimburse myself for all of the sawmill, farm, and travel expenses that I incur each quarter. All of the sawmill income goes into the farm account and the farm produces no other income. Prior to the sawmill, I had to pay the taxes & insurance plus the tractor fuel and upkeep. Where I gain is that I do not have to support the farm out of my personal account. I do not receive any pay from the sawmill.

WV Sawmiller · December 21, 2019, 10:39:15 PM

Lynn,

As we used to say in Japan (Redneck version) Go Mingh Assigh or verbiage to that effect which basically means something like "Sorry about that" if/when I misspoke. :( I'm not sure the real difference between paying yourself and reimbursing but I gather it means you went back and paid for the expenses you had already incurred and no profit or anything considered. Maybe it means switching funds from one bank account or such to another. Since I don't maintain different accounts it probably doesn't apply to me.

Anyway, thanks for the clarification and please forgive me if I said anything you considered offensive as that was sure never my intent. Stay well, keep up that PT and if you have any leftover pain meds send a bottle to OGH to help with his mashed up holiday fingers. ;)

Stuart Caruk · December 22, 2019, 02:09:31 AM

One way or another we pay well over 55% in taxes. Some we can avoid, legally, others we're just stuck with, but most of them are deductible. You can essentially double your income just by reducing your taxes, legally. Most people aren't even aware of the loopholes our congresspeople have crafted for themselves and their companies to avoid paying tax.

I couldn't afford most of my equipment if it wasn't deductible. My very favorite deduction is section 179 MACRS. It allows you to deduct 100% of the cost of your equipment and delivery in the year you put it in service. If you need it to run the sawmill business or the farm, it's clearly a legitimate deduction. I'd add forks or a grapple and right that off as well.

If you don't have enough income to use the entire write off, use what portion you need and depreciate out the rest.

Magicman · December 22, 2019, 08:03:41 AM

No offense taken whatsoever Howard. I'll admit that mine is different, and yes it does entail a separate bank account in a different bank for the business. I write a reimbursement check from the business account to myself each quarter which is then deposited in a personal account in another bank. All of my business expenses are paid from that account. It may sound a bit confusing but the income tax advantage is very significant. My accountant likes my arrangement.

Neither of the bank accounts described above are in any way connected with mine and PatD's bank account that handles our normal household banking activities.

WDH · December 22, 2019, 08:33:27 AM

Not being nosy, but one question comes to mind. The Farm pays you for the expenses you incurred, and I assume that the Farm then writes off that payment as a cost. How do you handle the money in the other separate account? Is that considered "income"? If you wrote that off your personal taxes, would not that be deducting the same cost twice? Or is it that you "loaned" the money yo the Farm and they are paying it back at no gain to you?

Magicman · December 22, 2019, 08:52:02 AM

Quote from: WDH on December 22, 2019, 08:33:27 AMOr is it that you "loaned" the money yo the Farm and they are paying it back at no gain to you?

The expenses that I incur are repaid like for like. Yup, I guess that it would be like a loan because that is what it is. No expenses or anything are claimed on my personal taxes. We file a personal joint income tax form and the farm files it's own income tax form, which of course includes all of the income and expenses of the sawmill because the farm owns the sawmill.

That is also the reason for the separate personal bank account. There is no 'mingling of money' between our personal/household account and the business.

stavebuyer · December 22, 2019, 09:21:18 AM

Quote from: Stuart Caruk on December 22, 2019, 02:09:31 AM
One way or another we pay well over 55% in taxes. Some we can avoid, legally, others we're just stuck with, but most of them are deductible. You can essentially double your income just by reducing your taxes, legally. Most people aren't even aware of the loopholes our congresspeople have crafted for themselves and their companies to avoid paying tax.

I couldn't afford most of my equipment if it wasn't deductible. My very favorite deduction is section 179 MACRS. It allows you to deduct 100% of the cost of your equipment and delivery in the year you put it in service. If you need it to run the sawmill business or the farm, it's clearly a legitimate deduction. I'd add forks or a grapple and right that off as well.

If you don't have enough income to use the entire write off, use what portion you need and depreciate out the rest.

The section 179 MACRS is one of the few advantages to owning your own business. You get the chance to spend your profits to buy equipment that can expand your business before the government gets ahold of it. When you add all the Fed,State, and local taxes to the equation you are more than doubling your purchasing power.
Of course if you don't really "need" the items or if they don't add to your future bottom line; then you may have been better off to pay the tax.

Biocmp · February 19, 2020, 07:45:01 AM

When just starting out, is it best to get the "business" paperwork completed before purchasing a mill and any other equipment? Even if I don't know what income will be generated?

I'm wanting to run a mill/woodshop operation and I want to turn it into my side business.

When purchasing from another business, can it be 2nd hand from a seller on woodweb? Think woodworking machines, etc. Can it be from craigslist if the transaction is recorded? or does it have to be a taxed, business to business sale?

Just curious what leeway there is in the acquisition of used equipment. I'm going to search for other threads that help direct new sawmillers, if anyone has a link handy, I'd be grateful.

stavebuyer · February 19, 2020, 08:28:21 AM

Quote from: Biocmp on February 19, 2020, 07:45:01 AM
When just starting out, is it best to get the "business" paperwork completed before purchasing a mill and any other equipment? Even if I don't know what income will be generated?

I'm wanting to run a mill/woodshop operation and I want to turn it into my side business.

When purchasing from another business, can it be 2nd hand from a seller on woodweb? Think woodworking machines, etc. Can it be from craigslist if the transaction is recorded? or does it have to be a taxed, business to business sale?

Just curious what leeway there is in the acquisition of used equipment. I'm going to search for other threads that help direct new sawmillers, if anyone has a link handy, I'd be grateful.

If you plan on operating it as a business I would first off open a checking account in the business name and keep it strictly "business" and run all expenses and income through that account that pertains to the business. If you don't have a name or cant decide on a business structure(Sole Prop,LLC,INC.) still open a separate checking account as John Doe Business Account etc.
Used equipment qualifies for depreciation. Sales and/or use tax might apply in your state on used equipment especially if bought from a private party and they don't collect it. You may be liable for sales taxes(or Use Taxes) on out of state purchases and private party purchases ix tax was not paid at time of purchase.
Keep good records and money spent on talks with a CPA familiar with small business will be the best money you ever spend.

stavebuyer · February 19, 2020, 08:31:48 AM

Quote from: stavebuyer on February 19, 2020, 08:28:21 AM
Quote from: Biocmp on February 19, 2020, 07:45:01 AM
When just starting out, is it best to get the "business" paperwork completed before purchasing a mill and any other equipment? Even if I don't know what income will be generated?

I'm wanting to run a mill/woodshop operation and I want to turn it into my side business.

When purchasing from another business, can it be 2nd hand from a seller on woodweb? Think woodworking machines, etc. Can it be from craigslist if the transaction is recorded? or does it have to be a taxed, business to business sale?

Just curious what leeway there is in the acquisition of used equipment. I'm going to search for other threads that help direct new sawmillers, if anyone has a link handy, I'd be grateful.
If you plan on operating it as a business I would first off open a checking account in the business name and keep it strictly "business" and run all expenses and income through that account that pertains to the business. If you don't have a name or cant decide on a business structure(Sole Prop,LLC,INC.) still open a separate checking account as John Doe Business Account etc.
Used equipment qualifies for depreciation. Sales and/or use tax might apply in your state on used equipment especially if bought from a private party and they don't collect it. You may be liable for sales taxes(or Use Taxes) on out of state purchases and private party purchases ix tax was not paid at time of purchase.
Keep good records and money spent on talks with a CPA familiar with small business will be the best money you ever spend.

https://forestryforum.com/board/index.php?topic=109152.0
maybe more than you want to know discussed in this topic

terrifictimbersllc · February 20, 2020, 07:55:59 AM

Quote from: Biocmp on February 19, 2020, 07:45:01 AMWhen purchasing from another business, can it be 2nd hand from a seller on woodweb? Think woodworking machines, etc. Can it be from craigslist if the transaction is recorded? or does it have to be a taxed, business to business sale?

One main rule for business purchase is that it be "ordinary and necessary" (for your business). Sure you can buy something used from someone else. However if you dont have a receipt to prove you bought it that could be a problem if you get audited. So, pay cash and dont get a receipt, no-but see last sentence. Write a check and dont get a receipt, iffy (IMO). Pay cash or check and get a receipt or invoice marked paid, all good for proving your purchase. If you buy from someone who isn't willing to make out a receipt,invoice, or bill of sale that person is probably going to want cash too. If you're sure the item isnt stolen then nothing wrong with buying it but maybe take into consideration that you shouldnt deduct it on your tax return and price accordingly. Unless it bothers you that you're participating in the underground economy.

petefrom bearswamp · February 20, 2020, 10:08:35 AM

All my finances are on quicken, one checking account with different categories.
With 3 pieces of timberland plus my get rich quick sawmill business all I do is print off a report with all of my timberland and mill income and expenses and send it off to the accountant.
All of the income and expenses runs thru as farm income.
Granted my income from these enterprises is pretty small except when I sell timber and accountant fee Runs 500 to 550 per year but well worth it IMO.

Greyman · February 20, 2020, 06:20:42 PM

Be careful - taxes are a lot different for 2019 than before. Standard deductions are larger so it won't usually be an advantage to make donations, claim mortgage interest, medical expenses, etc. etc. Read up on it and be wary when you think (or anyone else says) "the way I always did it was ______". My business is consulting so I don't have capital equipment, so not sure if/how that changed.

Walnut Beast · October 07, 2020, 09:05:09 PM

Can a sawmill be depreciated as ag if your cutting your own trees on your own farm ?

farmfromkansas · October 07, 2020, 10:21:24 PM

I actually farm for income, and my accountant is a neighbor. I ask him if I can buy this or that and if I use it on the farm it is deductible. Most of my equipment is just expensed in total the year I purchased them. Only buy a piece of equipment if I have income. Looking at a newer manure spreader this fall or winter, after the season is over, the price goes down. When I bought a new table saw, I used it to square up used pieces of waferboard to line my shop walls. He asked if I used it to fix up the building, and did so he wrote it off. Guy has done accounting for 50 years, hope he stays with it as long as I live, he is about 8 years older than me.
You guys who want to buy and use equipment on your acreages, need to visit with your accountant prior to the purchase. Then you know where you stand.

w