TOOLS DEDUCTION

[TAXMAN]

TP is auto mechanic (Sch C). Buys tools from Snap On truck with open account. Pays whatever mim happens to be each week. Buys bigger tools(boxes and scanners) on a Snap On account and pays mim each week. I read somewhere that because this is handled as a store account TP cannot write these tools off until paid for. Am I totally off base because these tools were put in service the year TP got them, not when he paid them off. Help me grab control of this as I will be picking up this TP as a new client this year. 

[Terry D EA]

I have a schedule C (disregarded entity) client who is in the same industry. The tools are expensed the year they are purchased (put into service) regardless of the method used to pay for them. The Snap-On dealer will setup a truck account which is a no interest account and larger items maybe financed by Snap-On themselves. Either way, they are either expensed or depreciated in the year they are put into service. Items like the scanner would probably be depreciated as they do have a useful life of 3 years as they would fall under the category of computers and peripherals and from Snap-On, they can cost 10K +. Same with tool boxes except the tool boxes would have a longer useful life. I know you didn't ask but just a heads-up, updates for the scanners are usually yearly and can cost 1,000.00 and up. This too can be depreciated but not more than three years. Hope this helps.

[Abby Normal]

We treat these just like we do credit cards, enter all the transactions as either an asset or an expense, and create a liability. Unfortunately, Snap-on is famous for having multiple accounts for one customer.

Good luck!

[jklcpa]

Agree with Terry and Abby to take the expense or capitalize when the tools or tool box are put in service.

Maybe you heard not to take the deduction until it's paid for because those tool boxes do get repossessed for nonpayment of account.

There are a couple of reasons the mechanic might have multiple accounts he is paying on, and it isn't the fault of Snap On or the other tool companies. Many, or most, of those tool men own their own routes and aren't employees of the national company. They extend their own credit to the mechanics on a truck account with those minimum weekly payments. If the mechanic changes jobs and has a different Snap On rep at his new location, he will have another truck account to pay on if the new rep also extends him credit, but he still also owes the first salesman until that is paid off. Then, on the larger purchases like tool boxes, those might be financed through the Snap-On national company itself or some other credit company so that the salesman doesn't have to carry the mechanic for those larger balances.  So you see, simply with a financed tool box purchase and a change of employment, that one mechanic could potentially end up with 3 separate payments to Snap On, plus the same with Matco or Mac Tools.

Don't forget your de minimis policy for this Sch C business.

[Terry D EA]

Hey Judy, you must have a lot of experience with auto technicians. You hit it right on the head with the truck accounts. Guys have to be careful not to owe every tool dealer in the county. You may remember from other posts of mine that I too have been and still am an auto technician and now teach auto tech in high school and college so these things are far from new to me.  I did think about the de minimis policy but because the OP didn't really explain the purchase amounts, I didn't suggest it. You are correct though and he should follow the guide lines of the de minimis policy. 

[jklcpa]

14 minutes ago, Terry D said:

Hey Judy, you must have a lot of experience with auto technicians

A lot of experience. My husband is a retired auto tech, and he went to Mac Tools training but decided selling tools wasn't for him.  I also did the accounting for many years for several Goodyear stores, a few gas stations with bays, a couple of local repair shops, and a car dealer for years at the firm I worked for.

[easytax]

Just want to be sure I am doing "it" correctly --- The schedule  C is mentioned, etc.  but I am basically doing the same with mechanic employee's (itemized of course) including having the de minimis policy. Also, expensing toolboxes and electronics, etc. (sec 179) for a few of my clients.                  Am I correct or have I missed something?

[jklcpa]

11 minutes ago, easytax said:

Just want to be sure I am doing "it" correctly --- The schedule  C is mentioned, etc.  but I am basically doing the same with mechanic employee's (itemized of course) including having the de minimis policy. Also, expensing toolboxes and electronics, etc. (sec 179) for a few of my clients.                  Am I correct or have I missed something?

Sounds like you are doing it correctly. Expense small items directly as small tools under the de minimis policy, capitalize and depreciate, or use sec 179, for the larger items such as the tool boxes that will last more than one year. These expenses are on line 21 of the Sch A subject to the 2% haircut unless there is some employer reimbursement involved that would cause them to be reported on the 2106 first, but ultimately they end up on Sch A either way. 

[michaelmars]

15 hours ago, Terry D said:

I have a schedule C (disregarded entity) client who is in the same industry. The tools are expensed the year they are purchased (put into service) regardless of the method used to pay for them. The Snap-On dealer will setup a truck account which is a no interest account and larger items maybe financed by Snap-On themselves. Either way, they are either expensed or depreciated in the year they are put into service. Items like the scanner would probably be depreciated as they do have a useful life of 3 years as they would fall under the category of computers and peripherals and from Snap-On, they can cost 10K +. Same with tool boxes except the tool boxes would have a longer useful life. I know you didn't ask but just a heads-up, updates for the scanners are usually yearly and can cost 1,000.00 and up. This too can be depreciated but not more than three years. Hope this helps.

First I agree with expensing in year put in service. but I do question some of what your wrote.  With the new regs you can expense items under $2500, also if you expect to replace them with in 10 years. I think one of the purposes of the regs is to eliminate the depreciation on 100's of small items.  Another question I have is since the scanner updates are yearly why would you write them off over 3 years?  What do you do with your tax software, expense or 3 years?

Its a whole new game now since TPR and all capitalization decisions need to be re-thought.

 

[TAXMAN]

So in retrospect even tho this is a store revolving account treat items as in service and choose which way I may go on dep or deminus rule instead of waiting until its paid for? Is this what we are thinking?

[kcjenkins]

2 hours ago, TAXMAN said:

So in retrospect even tho this is a store revolving account treat items as in service and choose which way I may go on dep or deminus rule instead of waiting until its paid for? Is this what we are thinking?

Yes, that's right.  As Michael said, the new regs greatly simplify expensing these types of equipment.  And don't get confused on the software issue.  While software may be a 3 year class, any software that is updated/replaced every year [tax software is a perfect example] should be expensed each year.