I have a small business with one location. I recently opened a second location. While I was doing the build-out of the new space, I purchased supplies, equipment, etc. I coded all of the purchases to a leasehold improvements account. For things like, plumbing, electrical, framing, etc., I'm going to amortize this balance over 60 months starting in August, 2016 when the new location opened. How do I account for the supplies, etc.?========>Basically as you can see, it depends; aslongas you expect the equipment you purchased for your biz to last longer than the current tax year of 2016, you can deduct the expense through depreciation. To use the depreciation method of tax accounting, deduct a portion of what you paid for the equipment each year the equipment is expected to last;you can take 5 years to depreciate your biz use equipment or you can take sec 179 expensing allowing you to deduct the entire cost (subject to certain limitations) of an asset in the year you acquire and start using it for business. The max. Section 179 deduction is $500k. If your total acquisitions are greater than $2M the maximum deduction begins to be phased out
If your biz is an S corp, partnership or multi-member LLC, it cannot pass the Sec 179 deduction on to shareholders, partners or members unless the business has income. As a sole proprietorship, you must also have earned income to take the deduction. Any Section 179 deduction that is not used in the current year because it is greater than your business income can be carried over to subsequent years;you may apply both sec 179 and bonus depre or either one of them it is up to you or you never apply any of them. Bonus depreciation is a method of accelerated depreciation which allows your business to make an additional deduction of 50% of the cost of qualifying property in the year in which it is put into service.
So, Section 179 deduction and the special depreciation allowance, or SDA (sometimes referred to as bonus depreciation), allow for a more rapid write-off of the cost of acquiring property, plant and equipment by a business. Sec 179 and SDA apply in most part to personal property used in an operating business
The most important difference is both new and used equipment qualify for Sec 179 deduction (as long as the used equipment is new to the taxpayer), while bonus depreciation covers new equipment only. Bonus depreciation is useful to very large businesses spending more than $2M on new capital equipment in 2011. Sec 179 is only available to a business with $2M or less in purchases of Sec 179 property during the year. Businesses with a net loss in 2016 qualify for bonus depreciation on new equipment. Sec 179 is limited to taxable income and cannot increase a loss, where the special depreciation allowance can.
Accelerated Depreciation called The Modified Accelerated Cost Recovery System is the proper depreciation method for most biz use equipment however if you want, you can apply straight-line depreciation , the simplest method but also the slowest, so it's rarely used. If you choose the straight-line method to depreciate an asset, you cannot switch to MACRS later
You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called capital expenses. Capital expenses are considered assets in your business. In general, there are three types of costs you capitalize.
Business start-up costs ;
Correct; as you said,new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements. Generally, you must capitalize the costs of making improvements to a business asset if the improvements result in a betterment to the unit of property, restore the unit of property, or adapt the unit of property to a new or different use.
Should I have expensed them when I purchased themDo they need to be amortized also?=======>>>>>>>>>>
As mentioned above; you can either expense them or amortize(depreciate) them, depending on the situation. As said in the case of improvements,new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements must be cpaitalized.
Do I record the expense all in the first month of opening?===>>>>>>>>>>> you
must use Form 4562 to report depreciation on a tax return. You need to report supplies expenses for the biz on your Sch C of 1040 as a sole proprietorship.