gfizer Posted February 13, 2015 Report Share Posted February 13, 2015 Taxpayer is a diesel mechanic who purchased approximately $6,000 worth of tools which are used and stored at his employer's location. Can I deduct these as an employee business expense on Form 2106 or do I need to first use section 179 expense on Form 4562 which passes through to the Form 2106? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 13, 2015 Report Share Posted February 13, 2015 Taxpayer is a diesel mechanic who purchased approximately $6,000 worth of tools which are used and stored at his employer's location. Can I deduct these as an employee business expense on Form 2106 or do I need to first use section 179 expense on Form 4562 which passes through to the Form 2106? You'll have to first apply the new repair/capitalization rules first. If an individual item or invoice is under $500 you can deduct it as "supplies". If it is over $500 for an item, capitalize. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 13, 2015 Report Share Posted February 13, 2015 He can only deduct the payments he actually made in 2014. All goes directly to 2106. I do not believe that the capitalization/repair rules apply to him as this is unreimbursed employee expense. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 13, 2015 Report Share Posted February 13, 2015 He can only deduct the payments he actually made in 2014. I agree with that ^, sort of. He can only consider those purchases made in 2014 as current year acquisitions. For the tools of prior years, if there are any, he possibly should have capitalized and depreciated those. He may have some deduction of unrecovered cost if they weren't already fully expensed or depreciated in prior years. Allowed or allowable. All goes directly to 2106 ... this is unreimbursed employee expense. I disagree with this ^. This type of tangible property that is used for the production of income is considered business equipment, and if it has a useful life of more than one year its cost should be recovered through depreciation. If it is a small tool that has a useful life of less than one year it could be expensed. Again, I'd look at the invoices to decide what needs to be capitalized, report it as an asset on 4562, use the bonus or 179 deductions if you are able and want to, and have it flow either directly to Sch A subj to the 2% limitation or to the 2106 and then onto Sch A from there. Quote Link to comment Share on other sites More sharing options...
Max W Posted February 13, 2015 Report Share Posted February 13, 2015 Even if the Repair/Cap rule were to be used, there is little likelihood of any item being over $500, since they are hand tools. 2 Quote Link to comment Share on other sites More sharing options...
JMovichEA Posted February 13, 2015 Report Share Posted February 13, 2015 Some items could be, the very large tool boxes, for example. My BIL mechanic purchased a diagnostic scanner which was around 4,000. 1 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 13, 2015 Report Share Posted February 13, 2015 there is little likelihood of any item being over $500, since they are hand tools. Not true. We don't know this ^ unless we ask what is included in that $6000 of tools. What if that mechanic purchased a new Snap On tool tool box included in that $6000 figure. Just the bottom portion of those boxes start around $2800 and go up from there? Middle quality around $5-6,000. Top end is more. There are tops for those too. There's a reason why companies like Snap On and other offer financing. Mechanics getting into the trade can easily spend $10K or more just to get rolling with the job. ETA - I was typing when JMovichEA responded. I agree with him. I was responding to MaxW. I know all about mechanics tools because my husband was in the trade for 42 years. 2 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 13, 2015 Report Share Posted February 13, 2015 (edited) I totally disagree with the depreciation idea. These are tools his EMPLOYER requires for him to perform his JOB. Directly to 2106. He is NOT self-employed. These are NOT business equipment. ASE Gold Certified Master Technician from 1974 till 2004. Left the trade as a Service Manager in a major automotive company dealership. I don't miss it!! Edited February 13, 2015 by Jack from Ohio Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 13, 2015 Report Share Posted February 13, 2015 From Pub 529 - Miscellaneous Deductions Tools Used in Your Work Generally, you can deduct amounts you spend for tools used in your work if the tools wear out and are thrown away within 1 year from the date of purchase. You can depreciate the cost of tools that have a useful life substantially beyond the tax year. For more information about depreciation, see Publication 946 Pub 535 under business expenses implies the same thing - Under Capital vs Deductible: Tools. Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor. Jack, I know you don't want to believe me, but the general rules for business expenses apply to all the schedules whether it is on Sch C, 2106, or on the Sch A itself, or is incurred by an entity other than an individual. In addition to meeting the general criteria that all business expenses must meet (incurred in trade or business, or for production of income, ordinary & necessary, and economic performance test met, profit motive), the other rules regarding expense vs capital can't be ignored simply because you say it is on the 2106. An expensive toolbox, rolling work carts with drawers, scanners, air guns, multi-tools such as testers: those will all last beyond one year and should be capitalized unless the cost is minor. 1 Quote Link to comment Share on other sites More sharing options...
easytax Posted February 14, 2015 Report Share Posted February 14, 2015 I am trying to follow --- several questions ---- given JUST the original information and question: would the answer be --NO --- not 2106 but to sch. A? If reading the regs properly 2106 is only if "other items are there too (travel, meals, etc.) but if not then JUST sch. A. If I am incorrect, please let me know as this is what I have been doing. As to things such as the tool box, could/would you not just 179 it and be done --- again just flowing to sch. A. My folks anymore are all employees (yes, mechanics are in a trade but mine are employees not IN BUSINESS per se) and for the items we 179 probably will keep till death; which means long time "out" of any recovery cost (realistically), with most small tools fully expensed in year purchased. Given I have no clients with inventories, etc. and have been spared the 3115 headaches, am I missing something for the couple that we have basically been expensing and 179ing where there is nothing there anymore. Do I need to do something with 3115??? My limited understanding 3115 (sorry did not pay a lot of attention, as I am "out of that part" -- or so I thought) : expense (just like old $100 limit) anything $500 or less. Over the $500 then look at sec 179 use. That 3115 was to "help us" know what was a repair and what was something needing capitalized with some individualized guidelines when breaking down components (such as in a building (electrical system vs. heating vs. plumbing) instead of looking at the building as a whole.. Thanks in advance. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 14, 2015 Report Share Posted February 14, 2015 Easytax, you are correct that unless he mechanic receives reimbursements not included on the W-2, the tools deduction or the depreciation would be entered directly on the Sch A as a miscellaneous deduction subject to the 2% limitation. If the tools are expensive and have a life of more than one year, the taxpayer would enter that as a depreciable asset and could elect to expense it using the sec 179 as long as he is otherwise eligible to use that. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 14, 2015 Report Share Posted February 14, 2015 Easytax, you are correct that unless he mechanic receives reimbursements not included on the W-2, the tools deduction or the depreciation would be entered directly on the Sch A as a miscellaneous deduction subject to the 2% limitation. If the tools are expensive and have a life of more than one year, the taxpayer would enter that as a depreciable asset and could elect to expense it using the sec 179 as long as he is otherwise eligible to use that. So in your scenario, he can deduct more than he actually paid in 2014? He can deduct total purchases? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 14, 2015 Report Share Posted February 14, 2015 No Jack, did you even read what easytax wrote that I responded to? Easytax asked about whether a 2106 was proper reporting, and it is isn't if there were no reimbursements. Those job expenses are considered for entry directly on sch A line 21. That would include small tools, not something costing thousands and has a useful life of more than a year like a toolbox. Maybe my answer was not worded clearly enough for you to see why I said that about the reimbursements. Look at the flowchart in the instructions for form 2106 to see who must file that form and why easytax asked the question in the first place. Quote Link to comment Share on other sites More sharing options...
gfizer Posted February 14, 2015 Author Report Share Posted February 14, 2015 The tools in my case were all purchased in 2015. The taxpayer is a young man fresh out of college in 2013 and just started this job in 2014. And while some of the items are small things there is a purchase of Snap On tool box to the tune of $4,500. Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted February 14, 2015 Report Share Posted February 14, 2015 . These are NOT business equipment. Wages are considered taxable income from trade or business per the section 179 regs. 1 Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted February 14, 2015 Report Share Posted February 14, 2015 easytax you are correct in the way you are handling this. I was a mechanic for years and did exactly as you have stated until I got out of the business. I agree with Judy the toolbox is another issue but..... the 179 could be the way to go. Quote Link to comment Share on other sites More sharing options...
easytax Posted February 15, 2015 Report Share Posted February 15, 2015 (edited) Again, THANKS to all, I wondered about this, especially with the possibility of 3115 needs (again, GLAD I had to give those up). Yes, the tool box and some tools that were costly (air guns, etc.) were all 179'd with keeping a list of date, cost, etc. should they ever be sold -- to recoup any gain. Thankfully too is that the ones needing this are all in PA and it works that way for the state and locals too. Just glad my mind still was on track (for this run anyway). Keep enjoying! Edited February 15, 2015 by easytax Quote Link to comment Share on other sites More sharing options...
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