If you bought a truck for a new food truck business can you put the value of the sale price of the truck as an asset. Also would you put big equipment purchases under supplies or assets?
Capital assets, like a food truck, are reported as depreciating assets. Generally anything with a "class life" as in a depreciation table is reported as a depreciating asset, not as supplies. However, if the value is low, you may still report it as supplies, for instance less than $300. In addition, there is a "Section 179" option which allows you to elect to deduct the whole cost of certain depreciating assets in the year of purchase. They are still listed in the depreciation schedule until they are completely depreciated in value according to their class life.
So if you bought a $1000 stove or refrigerator, they would be depreciating assets, while a $150 microwave could perhaps be listed as supplies, although it certainly could be listed as a depreciating asset.
This could actually be of some advantage to you, as you will hopefully have more profits as the years go by, and the deductions year by year will be better matched to your income than a lump sum deduction in a year when you're not yet making very much money. Remember that taking section 179 is an elective choice, not a requirement.
Thank you for your quick reply. So if the truck cost $35,000 would we put that as a $35,000 asset that depreciates? And then we have supplies / equipment ranging anywhere from $6,000 to $600. Would we put them as assets depreciating as well rather than supplies
The most important thing to remember about the difference between business supplies and business equipment is that supplies are a short-term or current asset, while equipment is a long-term asset. Current assets are those assets used up within a year (more or less), while long-term assets are used over several years. Since supplies are supposedly used up within the year of purchase, the cost of supplies as current assets is expensed on the income statement and taken as a deduction on your business taxes in the year they are purchased. Any equipment that has a multi-year life expectancy would be considered an asset.
Since equipment can be used over a longer period of time, the value of this equipment is categorized as a long-term asset on the balance sheet, and the cost is depreciated over time (taken as a deduction in increments over the useful life of the equipment). In each case, the purchase cost is a deductible business expense (as long as the item purchased is used for business purposes), it's just that the expense may be taken over a shorter or longer period of time.
Business supplies are items purchased and typically used up during the year. The most common types of business supplies are office supplies, including staplers, sticky notes, highlighter pens, and supplies used to run copiers, printers, and other office machines.
For accounting purposes, business supplies are considered to be current assets. Business supply purchases are deducted on your business tax return in the "Expenses" or "Deductions" section.
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You are on the right track! Remember that with a $35000 food truck you will also want to include expenses of purchase, such as taxes, fees, warranties et al. All of these acquisition costs get included in the initial value that is then depreciated according to a table. You will find this under "depreciation."
Anything used to produce income on a recurring basis (such as a food truck, a stove, oven, refrigerator, etc) are capital assets that get depreciated over time.
Now cheap things such as utensils don't have a "class life" and are supplies. This is because such items tend to wear out rather quickly, break or get lost, and are replaced quite often. So those things you just expense and deduct in the year they are purchased.
In the food business, anything that becomes "a material part of" the product you sell is also treated as supplies. But you "can" treat it as inventory if desired. I don't know which would be better for you accounting-wise at tax time. But in my opinion, using the COGS section for inventory gives you a better and more firm paper trail. The downside is that in your business, the book keeping can be rather tedious.
- If the food truck is motorized and licensed to be driven on the road, you'll report it in the "business vehicle expenses" section, and not the business assets section. As such, I would expect that food truck to be 100% business use and nothing else. So you'll need to keep mileage records and actual expense records to see which is better for you at tax filing time; be it actual expenses or the per-mile deduction. I've no experience in your industry. But my first inclination is that actual expenses will get you the higher deduction.
Hi @Krj71455 I don't get on here a lot, obviously.
Accounting types like to think about where something best fits. The IRS, though, is only concerned about compliance. Since Sec 176 allows almost any fully used capital assets to be depreciated in the year acquired, there is likely to be no tax issue with declaring and deducting expenses regardless (of whether you called it a depreciating asset or a current expense,) assuming that your expenses are not out of scope with your income. The only question might be could you spread out the deduction using the depreciation tables (if you wanted to, because that was advantageous over the long haul.) In that case, you have to match your asset to some appropriate class life. Assets have classes :-). If it's attached to the food truck, you could probably classify it, even if it wouldn't be otherwise classified. On the other hand, if it's useful life is less than a year, (like paper clips, business cards, et al) you can be pretty sure this is not a long term asset ;-). Just to give you an example, you could buy a meat slicer and depreciate it, or you could just treat it as supplies. The IRS would get concerned if the meat slicer ended up at your sister-in-law's house in Phoenix and you only do business in Florida, no matter where you deducted the expense. But if it was a depreciating asset, you would have to sell it or junk it, and enter that against the asset entry in your depreciation tables. If you had just taken it as an expense, you just sell it or give it away and make sure that your decision was reasonably business-like, even though that was your favorite sister-in-law. (Maybe you replaced the slow slicer with a super duper slicer because your business was going out the roof and you only have room for one slicer on each truck, or you switched to pre-sliced meat to improve your work flow.)