Goof,
Pretty much what my first impression was. This is a fluffernutter sandwich. A lot of nonsense sweetness.
On the other hand, improved cash flow can be very important to a business.
DB2
1 Like
So I can start a business, buy all my tools that I need, go out of business and the government pays for the tools and I do not have to pay taxes anymore? I am thinking of starting a automobile repair shop on my own property. I always wanted a car lift. Hey I bet they would pay for my RV garage too!!! I need to check this out.
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How does the âgovernment pay for the toolsâ? Letâs say you start a business, maybe an HVAC company. You invest $150k up front, you buy a van for $50k, you have it painted with your logo and telephone number for $3k, you buy tools for $50k, you buy supplies for $40k, and you pay for ads with $7k. The tools were $50k, so you might get a first year depreciation of $50k. You start working at the business, but you really chose a bad location because there is huge competition there and you canât get enough business to survive. So you âgo out of businessâ, itâs sad, but you simply canât keep sinking more and more capital into the business, and you desperately need to make a living to pay your living expenses, so you are willing to take a job working for someone else again.
How exactly did the government pay for the tools in the case of going out of business? I donât think depreciation is a sort of refundable tax credit, is it @aj485?
I donât have to worry about that. I just find an accountant that knows how to work the tax code, which I write off my taxes also.
But next to no extra incentive to reinvest.
Depreciation is not a credit. It reduces taxable income. If you have a loss due to depreciation, that loss can reduce other income that you have (subject to limitations depending on what was being depreciated), which could result in a refund. But in itself, depreciation will get you back, at most, 37% - the highest tax bracket - of the depreciated amount. And if youâre in a low tax bracket, you would get a benefit of just 10% or 12% of the depreciated amount. So 100% depreciation wonât âpay for your toolsâ - just a portion of them.
AJ
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A true stat. But probably misleading in that most of these businesses are probably employing just 1 or a few people compared to bigger well capitalized business that would have the startup cash (or be able to get loans or VC money) to be able to afford lots of depreciable equipment.
It is not that there arenât big well funded companies that go under within a few years. It is just that counting each company with the same statistical weight is the wrong metric, IMO.
Mike
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I didnât mean to give it the same statistical weight, but âdepreciationâ is a widely used tool, everything from small businesses to one man operations to landlords to giant corporations make use of it.
And as you note the big ones go under too, and when they do any guesses if they will have a long tail of unused depreciation around or will they have accelerated it in the final desperate throes to stay afloat?
Yeah itâs going to hit tax receipts, and not âthe same as it would have beenâ
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Worrying about the failures does not help.
We need economies of scale in b2b sales.