Finding tax breaks for equipment costs
Investing in new equipment? Check out our experts' tips on writing it off.
Alberto L. Vasquez, Tulare, Calif.
I have about 40 flatbed trucks that I use from July to October. Ninety percent of the time, I use them on farmland. Am I eligible for any tax breaks?
By Kathleen Ryan O'Connor , Fortune Small Business contributor
Dear Alberto: While you should be able to harvest plenty of deductions for your truck usage, most of them are common to all owners, not just farmers. “The tax breaks you can get are available to many types of operating businesses,” says Richard Molé, a partner at Weisberg, Molé, Krantz & Goldfarb, a Long Island, N.Y., accounting firm.
If you own the flatbed trucks, you can depreciate them based on what you paid for them, says Molé. You have a couple of options: choose a less aggressive rate of about 20% a year over the next five years or opt for a higher rate up-front. Check with your accountant to see if you're eligible for a Section 179 deduction, which allows a sole proprietor, partnership or corporation to fully expense property in the year it is purchased.
If you're leasing the trucks, you can deduct your lease payments, Molé says. Are the vehicles breaking down? If so, you can also deduct the cost of maintenance – but only during the year when the repair work is done.
One potential tax break that's unique to your line of work is a fuel credit for farm equipment. “Multiply the gallons used by the statutory rate,” says Molé. In 2007, the farm fuel credit was rated at 18 cents per gallon for regular fuel, 24 cents for diesel, and even more for biodiesel. “That's a hot topic right now,” he says. Because it's a credit, you'll receive a dollar-for-dollar reduction in tax.
You can find a bumper crop of tax information on the Web; start with the encyclopedic Farmer's Tax Guide, which is published by the Internal Revenue Service. The department of Agricultural Economics at Purdue University also offers an extensive online primer on income tax management for farmers. But if you want to reap the most benefits from your trucks, it's wisest to consult with a CPA.
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Firs, you can get tax breaks for Depreciation of your trucks. Also, you may get tax breaks for the fuel that you use on your trucks. Third, you may get tax breaks on any loses or breaches of your equipment and trucks.