Actually don’t stop there. Please give us TBMs & CJs…

Actually don’t stop there. Please give us TBMs & CJs…

There’s a disclaimer that goes with the graphs above, what the book says and what reality is may be different. In my experience the tail often wags the dog.

We do use book values, but it is always to triangulate a subject aircraft’s value against two actual sold comparable aircraft. In other words, we don’t rely on the book to tell us what an airplane is worth, we compare the book values with our comps and then use that to determine the retail value of our subject.

100% Bonus Depreciation passes the House.

https://www.thinkadvisor.com/2024/01/31 ... reciation/

Should/Could asset depreciation* as it pertains to taxes be the same as the treatment in GAAP? Could they be normalized without creating chaos?

Should/Could assets be depreciated* based on actual market value instead of arbitrary schedules? I imagine this would create armies of certified appraisers for all sorts of business assets.

This would, of course, affect the use of the tax code as a tool of congress. Not saying this is good or bad, just pointing it out.

Interesting mental exercise to consider.

*maybe "valuation" is a better term.

Should/Could asset depreciation* as it pertains to taxes be the same as the treatment in GAAP? Could they be normalized without creating chaos?

Should/Could assets be depreciated* based on actual market value instead of arbitrary schedules? I imagine this would create armies of certified appraisers for all sorts of business assets.

This would, of course, affect the use of the tax code as a tool of congress. Not saying this is good or bad, just pointing it out.

Interesting mental exercise to consider.

*maybe "valuation" is a better term.

GAAP is bad enough as is. It should NEVER become part of the tax code.

Borrowing money doesn't fix the lack of proper value accounting in the tax code, you still only get back a fraction of what it cost you, which means you paid taxes on profits you didn't actually make.

Your theory is the one put forth by bankers to somehow convince people they make money by borrowing it. It isn't true.

If you truly work out the total economic impact with a proper inflation figure, you will see that depreciation never returns you the full offset of the investment even if you borrow the money. The tax code essentially taxes companies who invest in capital equipment or real estate.

Mike C.

The simplest thing is this: tax actual cash profits, the difference between revenue and expense.

If you buy a $1 M machine, and pay cash, it comes off your taxes as an expense. You pay taxes on your remaining profits (or carry forward losses). If you buy a $ 1M machine with a loan, the down payment comes off the first year, the loan payments come off over the loan term.

If you sell it later, the sale price counts as revenue in the business. Whatever market value it has lost or gained is taxed at this point. If the property becomes worthless, then you got $0 for it and thus no tax on that revenue.

This is the only actually fair way to do it. You get taxed on the actual money you made, and your net gain or loss, and property lifetime, are set by the actual events around using the property.

100% bonus deprecation does this for aircraft. 100% goes off the year you buy, the year you sell you have gain.

This would stop penalizing companies from investing in capital equipment like the current tax code does.

Mike C.

My personal thoughts to this exercise:

1) If income taxes followed a strict GAAP practice, then a business would be taxed on uncollected receivables since those sales are posted as revenue (Maybe the tax form would need a box to subtract this). I suspect this is a big reason why many companies file on cash basis.

2) market value would be tough. Accounting departments like formulaic approaches like straight line or double declining.

I am hearing that the Senate already passed the bill, and that Biden plans to sign it. However, I have not had any luck verifying that. I’ll try to spend some more time researching this weekend.

Depending on your business and objectives, a 100% depreciation of any asset would make for a very bad balance sheet. Obviously an issue for financing and/or selling a company.

Andrew

How so? You own the asset 100% so its value appears on your balance sheet as a positive.

You would rather pay taxes on profits you aren't going to make?

Mike C.