It's always hilarious when the DUmpmonkeys discuss the tax code. Never in the history of the DUmp has a DUmmy even understood the difference between exemptions and deductions, so a concept like depreciation doesn't have a chance.
Thu Apr 12, 2012, 07:10 PM
Kali (27,736 posts)
I do NOT understand depreciation. Can somebody help me? I need it explained like a 5 year old.
I don't get it, I'm not ever going to get it and I don't even WANT to get it. But I have a question.
Isn't depreciation a DEDUCTION you take on your taxes? Someone I know is trying to tell me they are taking a business LOSS because of depreciation. Is that possible? I mean the shit is so confusing to me, but I thought when you figure depreciation it created an amount you DEDUCT from the income for the year. Am I totally wrong?
How could he say - and I quote: "depreciation was $XXXX" then claim the loss for the year was damn near that same amount, when by my plain old cash calculation the guy cleared almost that amount???
http://www.democraticunderground.com/1002555930 Thu Apr 12, 2012, 07:20 PM
HooptieWagon (2,650 posts)
4. Yes, thats pretty much it. Furthermore...
if you used the car for some kind of business, lets say part time delivery service, and made $2500 in gross income; Ok, on your taxes you made 2500, but the car lost 3000 in value due to depreciation. So you have a net loss of $500.
DUmmy Kali isn't buying it. It's all a scam to help the rich guys.
Response to HooptieWagon (Reply #4)
Thu Apr 12, 2012, 07:44 PM
Kali (27,736 posts)
9. ok but
in terms of actual money, you still made the 2500 right? so where is the monetary loss? you still have the damn car, and you made 2500.
and you get to deduct SOMETHING due to these silly calculations, right?
say your tax on the 2500 was 50 bucks if you didn't deal with the car and the accounting crap.
what would the effect of doing the accounting crap have on that $50 amount?
If you need an explanation from a world-class loser like DUmmy The Straight Story, you're in deep trouble:
Response to Kali (Reply #9)
Thu Apr 12, 2012, 07:50 PM
The Straight Story (37,574 posts)
11. Ok, let's see....try this
You buy the car for 10k and it would only lose 1k in value the first year.
But then you drive it around for business. You make cash, but lose value on the car (which you could have traded in/sold/etc for cash) because of the mileage/wear/tear/and you also had to pay for gas, oil, filters, etc. You had to spend money to make it so you can deduct that as an expense - one of the expenses is the loss of value (kind of like when your house value goes down you are unable to get as much as before so you lost something).
You made some 'money' and lost some.
Response to Kali (Reply #9)
Thu Apr 12, 2012, 08:00 PM
HooptieWagon (2,650 posts)
14. Yes, you made cash, but you lost wealth.
Response to HooptieWagon (Reply #14)
Thu Apr 12, 2012, 08:14 PM
Kali (27,736 posts)
17. and also avoided paying tax on that cash right?
Here's a DUmmy who doesn't pay taxes, and never will:
Response to Kali (Reply #9)
Thu Apr 12, 2012, 08:17 PM
quaker bill (5,901 posts)
18. I run an isolated total cash business
I have been doing so for 5 years now. I make jewelry, after my day job. I started with a simple set of hand tools that I bought for an apprenticeship in High School, and a stone cutting machine my parents bought me in middle school, all quite some time ago
Starting from that simple point, I have now sold many thousands of dollars of jewelry. A very large portion of the dollars I have made have been spent to equip a real 1940's style jewelers production studio. In short I have purchased a variety of hand operated equipment with the dollars. All of it has been bought to allow me to incorporate a greater range of techniques into my body of work and to allow me to recycle precious metal scrap into new pieces.
In 5 years, I have only paid myself only once ($500). Every other dime has gone into materials and equipment. The way I can expense out the investment of making the business fly entirely off of sweat equity, is to depreciate the equipment against sales. This way I get to claim that in fact I have only pocketed $500. Since depreciation is accelerated, I will expense out all the equipment in 3 to 5 years, after which profits will be taxed fully as the equipment will have been "paid for".
It would make more sense to me to be able to just deduct the full equipment cost from profit the year that I spend the money, but that is not how it is done.
Response to quaker bill (Reply #18)
Thu Apr 12, 2012, 08:45 PM
Kali (27,736 posts)
22. that does make some actual sense to me, believe it or not!
in my example there sure isn't any reinvestment going on and I am positive the "loss" is just to off-set personal income tax from other endeavors.
it is legal, but there is some other stuff going on too. I wanted to make sure what was happening cash-wise, not just bookkeeping magic.
Response to Kali (Original post)
Thu Apr 12, 2012, 07:19 PM
panader0 (8,498 posts)
2. It's the opposite of appreciation
As in :Jeannie used to appreciate me more, but it's depreciated.
Huh?
Response to panader0 (Reply #2)
Thu Apr 12, 2012, 07:46 PM
Kali (27,736 posts)
10. makes a HELL of a lot more sense
than the 120 page IRS book I just skimmed through for the past 2 hours!
Can you imagine this DUmbass reading an IRS publication? Really?
Another DUmpmonkey takes a stab at penetrating DUmmy Kali's ironclad ignorance:
Response to Kali (Original post)
Thu Apr 12, 2012, 07:26 PM
Celebration (14,164 posts)
6. suppose you have a piece of equipment
And you paid 10,000 for it in year one. It lasts five years, though, so even though you spent the money in year one, you can't take a 10,000 deduction for it in year one. You have to spread the deduction over five years. That would make the deduction for each of the five years 2,000.
So with your friend--Say in year nine he cleared, in cash 1800 dollars. He still gets the depreciation deduction (remember he SPENT the cash in year one, but only gets to deduct it over five years). His cash flow for the year is 1800, but for tax purposes he loses two hundred dollars that year.
Comprende?
Sorry, DUmmy Celebration, you never had a chance:
Response to Celebration (Reply #6)
Thu Apr 12, 2012, 07:57 PM
Kali (27,736 posts)
12. no
I just don't see it. I think you meant he takes his last deduction at year five and the "nine" in your example is supposed to be a "five" as well (but I am not sure because this crap is so confusing!)
if that is just a typo, I still don't get it. He cleared 1800, and he gets to deduct 2000. but that 200 he "loses" doesn't really exist anywhere, right? (except on paper from five years before)
so if my guy has been deducting something like 25K in depreciation (and that seems insane to me) and this year cleared 10K before taxes - he can only zero that out right? so he would have no tax liability. But in reality he keeps the full 10K, yes? (I don't care what he spent 10 or 25 years ago - except that I know it wasn't anything near any of this - I just want to know what happens to the cash from this year.
Response to Kali (Original post)
Thu Apr 12, 2012, 07:29 PM
enough (5,877 posts)
8. Depreciation is one of the factors reported on Schedule C (profit or loss from business).
Because of the way the tax law is structured, it's perfectly possible for a business to show a loss "due to" depreciation. But you can't just name a figure at stick it into the line for depreciation. You have to have documentation showing that the depreciation is "real" according to the tax code. And assuming the IRS looks into it, it has to be "legitimate."
This is not to be confused with a "deduction" taken by an individual on his or her income tax.
Not saying it's fair or right, but that's the way the law is written.
Response to enough (Reply #8)
Thu Apr 12, 2012, 08:05 PM
Kali (27,736 posts)
15. or in this case schedule F
and the only possibility for that valuable of an asset has to be the livestock but in terms of the business actually costing the guy the "loss" showing on the income from the enterprise, it is just so much BS, right?
Response to Kali (Reply #15)
Thu Apr 12, 2012, 08:34 PM
csziggy (12,026 posts) Profile Journal Send DU Mail Ignore
21. It's all a tax dodge but it is how it's done
Investors can write off investment losses over a number of years by carrying losses forward and using them to write off future income. Depreciation lets regular businesses write off major investments in equipment against future income. Same deal.
Yet another DUmmy steps to the plate:
Response to Kali (Reply #25)
Thu Apr 12, 2012, 09:37 PM
TreasonousBastard (18,963 posts)
27. After all the technical explanations, what you want to know is...
there are two kinds of depreciation.
In the real world, you own something that gets old and is worth less year after year. Like a car. Some things, like real estate and Picasso paintings get old, but are worth more. Things that are worth less depreciate, and things that are worth more appreciate. Simple, eh?
Well, in the accounting world, this is all ignored and they make stuff up in order to figure out what you really own and get tax breaks. A rental building you might own depreciates on your books and gives you a tax deduction but often actually appreciates in value if you want to sell it and someone has to figure out just how to account for all this on your books. This is why you pay your accountant so much money-- he understands that marvelous work of fiction known as Generally Accepted Accounting Principles.
Here's a beauty:
Response to TreasonousBastard (Reply #27)
Thu Apr 12, 2012, 11:11 PM
Kali (27,736 posts)
30. oh you nailed it
I learned this stuff 20 years ago - I was on the jury for Charlie Keating's civil trial in Tucson. OMG the paper world of accounting. It was fascinating stuff, but so foreign to my life!
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Well, Charlie Keating sure got a fair trial by a jury of his peers, didn't he?
Response to Kali (Original post)
Thu Apr 12, 2012, 09:48 PM
Egalitarian Thug (349 posts) Profile Journal Send DU Mail Ignore
28. Let me cut to the chase, It is a taxpayer supported subsidy to businesses
that ordinary people are not allowed.
