Tax advice

[Addicting]

@CPAjeff @Big Fin or any other small business owner

I’ve been thinking of starting a small tractor type business. Is it better to personally own the
equipment and have the LLC lease it from you. Or is it better for the business to own everything so it can be depreciated?

I already own most everything and would be doing a trade in to upgrade the tractor. The implements are all owned by me and paid for. The new tractor would be the only thing carrying a note.

 

[David Gough]

An LLC is used for liability protection. If you're the only member of the LLC it will be treated as a disregarded entity for tax unless you decide to form an S-corporation (to avoid paying full self-employment tax).

In either case you can depreciate the property. It depends what the business is. If there is a note involved and you're carrying liability insurance for the work you are doing there is some element of risk. Without knowing more details putting the assets used by the business into the LLC makes sense. You'll want to ensure you're respecting the entity, otherwise it's a moot point.

 

[npaden]

Liability protection is the most common reason for setting up the LLC.

I’m not sure on the disregarded entity since I’ve always had partners but one other advantage would be avoiding self employment taxes on some of the income.

We have a separate entity that owns our building and we don’t have to pay self employment taxes on that income.

You have to be able to support that you are charging a reasonable rental rate though. I’m not sure if equipment rentals could be considered passive income to avoid the self employment taxes or not.

 

[David Gough]

Liability protection is the most common reason for setting up the LLC.

I’m not sure on the disregarded entity since I’ve always had partners but one other advantage would be avoiding self employment taxes on some of the income.

We have a separate entity that owns our building and we don’t have to pay self employment taxes on that income.

You have to be able to support that you are charging a reasonable rental rate though. I’m not sure if equipment rentals could be considered passive income to avoid the self employment taxes or not.

Partnerships can pass through self-employment taxes to the partners, just depends on the character of income.

I'm assuming the income from your building is from rent received and not subject to SE tax. Can be subject to section 1411 depending on your income level.

 

[gwhunter]

Im not a tax specialist, rather a small business owner and in this case the depreciation would likely be the best route to avoid that portion of taxable income on your earnings from the tractor business.

I dont know the specifics of the disregarded entity, but if you lease a new tractor you bought personally from yourself, you dont get to depreciate the cost of the tractor and you have to pay personal income tax on the "earnings" from the rental to your business. Im not sure of the accounting gymnastics there, but the advice my cpa always gave me was to keep things separate between business and personal as much as possible. In the event you finance the purchase, the interest you pay may also be deductible, but im also not positive about that either and would have to ask my accountant myself.

 

[Addicting]

Im not a tax specialist, rather a small business owner and in this case the depreciation would likely be the best route to avoid that portion of taxable income on your earnings from the tractor business.

I dont know the specifics of the disregarded entity, but if you lease a new tractor you bought personally from yourself, you dont get to depreciate the cost of the tractor and you have to pay personal income tax on the "earnings" from the rental to your business. Im not sure of the accounting gymnastics there, but the advice my cpa always gave me was to keep things separate between business and personal as much as possible. In the event you finance the purchase, the interest you pay may also be deductible, but im also not positive about that either and would have to ask my accountant myself.

Thanks, the more thought I’ve given this is to just purchase it thru the business to keep it separate. Seems most I e talked to recommended keeping things separate.

 

[David Gough]

Keep in mind there are different rules when renting out personal property vs. real property. I wasn't sure reading the first post if you were going to rent out the tractors or use the tractors to perform work for others.

 

[Addicting]

Keep in mind there are different rules when renting out personal property vs. real property. I wasn't sure reading the first post if you were going to rent out the tractors or use the tractors to perform work for others.

Use the tractor as an operator for small projects. Cost 375 to rent one near me, I can do quite a bit for 375 and save DIY homeowners time and headache.

Tractor just has to generate enough to pay for itself and the business insurance. Truck and trailer are undetermined on how to handle it.

 

[David Gough]

Use the tractor as an operator for small projects. Cost 375 to rent one near me, I can do quite a bit for 375 and save DIY homeowners time and headache.

Tractor just has to generate enough to pay for itself and the business insurance. Truck and trailer are undetermined on how to handle it.

Depends on how much personal use there is with the truck and trailer, but your CPA should be able to walk you through the options.

 

[Addicting]

Depends on how much personal use there is with the truck and trailer, but your CPA should be able to walk you through the options.

I am wondering with such a small gig if a CPA is worth it. I can’t imagine this venture making enough profit to warrant it. The VA and my wife’s income covers all my life expenses. So what little is left to carryover from a schedule C should be minimal.

 

[Lostinthewoods]

I am wondering with such a small gig if a CPA is worth it. I can’t imagine this venture making enough profit to warrant it. The VA and my wife’s income covers all my life expenses. So what little is left to carryover from a schedule C should be minimal.

I think a lot of this comes down to time, protection, and mental gymnastics.
Up until this last year I was doing taxes for my primary job, my wife’s primary job, my rental’s and a single LLC. I’m pretty organized, so it was ok-ish to do.
By the start of next year I’ll have military pension, VA, rentals, new primary job, the LLC, and I just created a new DBA (that I might flip to a LLC).

I’m at the point I want to be able to put that time on someone who is an expert at it so I can go use my mental capacity to grow my businesses.

I also interviewed a few who were able to teach me and show me where I can build a proactive plan verse just collecting my documents and filing.

Based off what you are saying I think you'll be able to cover everything.

Just don’t discount your mental gymnastics and time!

 

[cookchris]

Before you finalize anything, it’s smart to check with a CPA or small business tax advisor