Scott Stone
New member
GROSS 100,000 100,000
Operating expense 25,000 25,000
SALARIES 25,000 25,000
New equipment for tax deduction 5,000
Taxable income 45,000 50,000
Income tax 39% 17,550 19,500
After Tax income 27,450 30,500
I hear some people that say that you need to buy new equipment all of the time to get a tax deduction. In my experience, that is not the way to be able to retain the greatest profits. In the simple exercise above, it is easy to see that even purchasing a simple pressure washer at $5000 means that there was a true cost of $3050, after taking into account the tax deduction.
So, the next question is, when do I buy new equipment? My philosophy, and what has worked for me, is that I buy a new truck when I have solid contracts in hand for another employee, and an employee to operate it. If I am going to replace equipment, I replace it when the annual cost of maintenance is more than what it would cost me to make payments on the equipment on an annual basis. There are some exceptions, but that is the basis of how I make the buy decision.
Let me give you an example: I have a truck that is a 2005 Ford f-350. If I was to replace it new, it would cost me close to $50,000. The truck payment on that would be about $995 a month. If my repairs on my F-550 average about $7000 a year, because I need a new transmission, or the AC Went out, then it probably is not time to replace. One thing that can accelerate the purchase cycle for me is we have repeated small breakdowns. Part of the cost of repairs is downtime, and how much that piece is going to cost me in tow bills, in having an employee sitting on the side of the road and lost productivity.
I have known a lot of very successful contractors, and most of the best have equipment that is easily repaired, and though the frame is old, it might have a brand new motor and pump on it, because that is overall less expensive than buying a brand new piece.
So, the next time someone tells you that they need to buy a piece of equipment for a tax deduction, rest assured that it has less to do with a deduction and more to do with they wanted a new piece of equipment.
Operating expense 25,000 25,000
SALARIES 25,000 25,000
New equipment for tax deduction 5,000
Taxable income 45,000 50,000
Income tax 39% 17,550 19,500
After Tax income 27,450 30,500
I hear some people that say that you need to buy new equipment all of the time to get a tax deduction. In my experience, that is not the way to be able to retain the greatest profits. In the simple exercise above, it is easy to see that even purchasing a simple pressure washer at $5000 means that there was a true cost of $3050, after taking into account the tax deduction.
So, the next question is, when do I buy new equipment? My philosophy, and what has worked for me, is that I buy a new truck when I have solid contracts in hand for another employee, and an employee to operate it. If I am going to replace equipment, I replace it when the annual cost of maintenance is more than what it would cost me to make payments on the equipment on an annual basis. There are some exceptions, but that is the basis of how I make the buy decision.
Let me give you an example: I have a truck that is a 2005 Ford f-350. If I was to replace it new, it would cost me close to $50,000. The truck payment on that would be about $995 a month. If my repairs on my F-550 average about $7000 a year, because I need a new transmission, or the AC Went out, then it probably is not time to replace. One thing that can accelerate the purchase cycle for me is we have repeated small breakdowns. Part of the cost of repairs is downtime, and how much that piece is going to cost me in tow bills, in having an employee sitting on the side of the road and lost productivity.
I have known a lot of very successful contractors, and most of the best have equipment that is easily repaired, and though the frame is old, it might have a brand new motor and pump on it, because that is overall less expensive than buying a brand new piece.
So, the next time someone tells you that they need to buy a piece of equipment for a tax deduction, rest assured that it has less to do with a deduction and more to do with they wanted a new piece of equipment.