Lens ? for an accountant

Lenses I know, accounting is a fog to me. My CPA who I see once a year at tax time is depreciating my lenses. 5 yr term I believe. Is this standard accounting? Seems to me a silly idea. Lens prices and values just keep going up. I do not need any type of write off. Should I tell him to stop depreciating them?

What would be the downside of not depreciating them? Depreciating them allows you to take a deduction/credit against your profits without actually devaluing the lenses. You can still sell them for whatever they are worth despite being fully depreciated for tax purposes.

The idea behind depreciation is that you have an item that is useful over a number of accounting periods (years). If you buy a ream of paper, you use it all this year, it helps you make money this year, so you expense it this year. If you have an asset that generates revenue over several years, you spread the cost out over several years.

I don't know if 5 years is the typical depreciation period for a lens but it sounds reasonable. Remember that the IRS's idea of something's useful life doesn't always match up with how long it'll last. What do you mean when you say you don't need any type of write off? Is photography your business? If not, how are you deducting the cost of your gear? If it is, why not take deductions you're entitled to?

mike_d wrote in post #12124748
The idea behind depreciation is that you have an item that is useful over a number of accounting periods (years). If you buy a ream of paper, you use it all this year, it helps you make money this year, so you expense it this year. If you have an asset that generates revenue over several years, you spread the cost out over several years.

I don't know if 5 years is the typical depreciation period for a lens but it sounds reasonable. Remember that the IRS's idea of something's useful life doesn't always match up with how long it'll last. What do you mean when you say you don't need any type of write off? Is photography your business? If not, how are you deducting the cost of your gear? If it is, why not take deductions you're entitled to?

^^^ - yes,

and depreciation is not affected by lens price increases. And if you "don't need a write off" are you saying that you operating at a loss and don't want any more tax deductions?

gasrocks wrote in post #12124690
... Lens prices and values just keep going up. I do not need any type of write off. Should I tell him to stop depreciating them?

If your tax guy is unwilling to answer this type of simple questions, quit second guessing him and and find someone you can trust.

There are many reasons why you might want to depreciate equipment instead of expensing it (or ignoring it) but there's no way to evaluate this one decision in isolation from the rest of your tax situation.

Take the depreciation. Reduces your taxes currently. Entirely legal and ethical. I think you can make an argument for either 5 year classification (items with an expected life between 4-10 years, including most computers and similar equipment) or 7 year property.

Of course, if you subsequently sell the equipment, even for less than your original purchase price, you may have a reportable gain for income tax. Because the depreciation has lowered your basis in the items. In a grossly simplified example, let's assume your $1,000 lens is depreciated in equal amounts over 5 years. You will therefore get a $200 deduction in each year and reduce your taxes. However, if you then sell the lens after year 5 for $800, you will have to report a gain of $800, since your basis will now be zero for the completely depreciated asset. To cacawcacaw's point above, I assume there is a reason your accountant is suggesting this (vs expensing the asset all at once - which is an option for certain businesses). Press your accountant for a clear answer.

Still a good move - always take the deduction today for potential reportable income tomorrow.

watt100 wrote in post #12124885
^^^ - yes,

and depreciation is not affected by lens price increases. And if you "don't need a write off" are you saying that you operating at a loss and don't want any more tax deductions?

And even if that's the case, he could carry the loss forward and offset future profits.

OK, I buy a used lens that costs me $100. I keep it for 2 years and sell it for $120. Since it has been losing vlaue sitting here, I am liable for a big profit. OK, I sell the same lens for $80. - a loss but since it lost money, I have to claim that selling it for $80 is a profit? Makes no sense to me.

Just remember, that when you start depreciating your lenses, that the lenses are the property of your BUSINESS, and not you, meaning you aren't technically supposed to be using them for personal use, only business use. And, as Statement said, when you sell the lens, (depending on how long you kept it, and how much it deprecriated) you will have to claim the sale as profit and pay taxes on it.

Again, the whole point of depreciation is the deduction of the asset's "loss" in value due to use/age against your profit/earnings.

In your 2nd example, you would have negated $20 worth of earnings per year with the depreciation and claimed $20 earnings for the sale since it is worth $60 on your books (Assuming 5 year straight depreciation).

BigBlueDodge wrote in post #12124992
Just remember, that when you start depreciating your lenses, that the lenses are the property of your BUSINESS, and not you, meaning you aren't technically supposed to be using them for personal use, only business use.

+1... you can only depreciate business assets.

Like I said, a fog to me. I make so little money that I pay no taxes. I do not need more deductions. I can see deprecitaing cameras as they do wear out. And cars, but maybe I am too biased in thinkning that lenses do not wear out, at least not totally in 5 years. I have lenses older than I am. They still have value.

gasrocks wrote in post #12124955
OK, I buy a used lens that costs me $100. I keep it for 2 years and sell it for $120. Since it has been losing vlaue sitting here, I am liable for a big profit. OK, I sell the same lens for $80. - a loss but since it lost money, I have to claim that selling it for $80 is a profit? Makes no sense to me.

?????
I cannot follow your example. But yes, if you bought a lens for $100 and depreciated it for two years and then sold it for $120 you would have a "profit".
If you sold that lens for $80 after two years then you would have a "loss".

You depreciate to lower your tax basis. If you pay no taxes then there is no need to depreciate your gear. In fact, I personally wouldn't do it, as I stated previously, any item that you depreciate is the property of your business, and requires that you track,and report any sales later. If you don't need the tax write off (which you don't since you pay no taxes), then just keep it as a personal item.

Don't confuse tax gain/loss with actual profit. Take that $100 lens, depreciated over 5 years: You deduct $20 from your taxable income each year you own the lens. That reduces your tax bill every year. After two years, the basis (tax value) of the lens is $60. Now you sell the lens for $80. You lost $20 on the sale but you have a tax gain of $20 because you sold it for more than its basis. But remember, you'd already deducted $40 off your taxes so after showing that $20 gain, your overall deduction for the lens is $20 over the two years you owned it.