can someone elaborate on the answers here ?
i get that the following information is wrong but can someone please explain how to correct ALL my mistakes below ?
please read to the end as it may shorten response .
thanks in advance.
2019 joe loans business $10,000 to buy machine and counts 10,000 as income.
2019 joe pays company $10,000 for machine and counts that as expense .
balancing out at $0.
however now company owns a depreciable asset at $10,000 of which it depreciates $2,000 the first year . so an extra $2,000 deductible for this year
.........
(maybe im already wrong but it gets worse)
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2020 business repays $10,000 loan to joe but repayment of loan is not deductable so business now shows a $10,000 profit.
as an s-corp joe now pays tax on the $10,000. but machine depreciates another 2,000 so really taxed on $8,000 . or $6000 if you alsso include credit from previous year .
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(am i gettin this right?)
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point is , joe thought he was making a smart move but if instead he went through a leasing company he would get the deduction of each months payment plus additional deduction from machine depreciation.
to make the math easy
$2,000 a year in payments
$2,000 a year in depreciation
for 5 years is $20,000 worth of write offs .
............
but the way i went
is
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$2,000 depreciation credit first year.
pay tax on $6,000 income second year
$2000 depreciation 3rd year
$2,000 depreciation 4th year
$2,000 depreciation 5th year .
btw these are made up numbers for simplification
but all real scenarios.
**** revised*******
i know this is not right.
1- ive learned that if i enter money as income and deduct it later as loan i am screwing up my books right there,
2- ive learned that the interest of a loan is deductible but not principal but then id have to report interest on personal returns .so business would make less id pay less tax on shedule k-1 but more tax on incone from interest.
but i need to figure out how to straighten this out and file ammended returns .
