Can a real CPA please use the white courtesy phone and check in?

They have. Unfortunately, it's always ambiguous. Personal situations vary so much.

For me, I usually spend more in capital investment than we make in "profit" in a given year, so I like the ability to plan and spread out depreciation, however it works best in that year.

Too bad it is one of the few things you are wrong about!

That is not the case. If I expense all my large asset purchases, that gets subtracted off and spread out on a tax schedule the CPA does for annual filings.

That doesn't affect depreciation.


No, depreciation over multiple years is a 0% loan to the US treasury by the business.

Any thought on current inventory levels? I’m specifically interested in Baron G58.
Thanks!!

Sorry, the numbers don't support your claim since there is no loan to be seen anywhere.

The exemplar rig operator spent $1M to get the rig and took in revenue of $500K. He is down $500K that year. He doesn't have any "loan" from the treasury.

The IRS says you can't expense the rig, you can only take $100K off this year (10 year straight line, for example). So the IRS says he made $400K profit and must pay taxes on this phantom profit, so he out another $150K (say) in taxes due to that. He is effectively being taxed on the undepreciated value of the machine.

In subsequent years, he can take another $100K deduction for the depreciation, but the value of each of those is reduced by inflation. In the end, he really only gets about 75% of the cost of the machine to offset his income, meaning about $250K was taxed as income he never really got in the end.

How is any of this a loan from the treasury? Where is the loan money you speak of?


The way I would say it is that expensing capital equipment makes it fair to businesses. They get the full value of the equipment set off from income and only get taxes on the true profit they actually made.


Expensing is fair, depreciation is not.

There is a way to make depreciation more fair. Escalate the deduction every year by the rate of inflation since purchase. Then the business owner gets the true value of the equipment to offset income. It still leaves him with the initial penalty of owing taxes when he made no money, but now at least he will make that up in future years.

Imagine if the rig operator goes into the rig store and the machine is priced at $1M. The rig operator says "I can't pay you $1M, but I can pay you in yearly payments of $100K for the next 10 years, that will add up to $1M." Would the store accept that deal? Of course not, but that's the raw deal of depreciation, no time value of money is considered.

The tax system penalizes companies for getting capital equipment. They end up paying taxes due to some fraction of that equipment's value being considered profit.

Mike C.

An oil rig isn't a business expense, it's a business asset just to be clear.

And a buyer can absolutely go into a Rig's R Us and say they'd like to buy this over the next 10 years and not up front all at once. In fact, there's an entire industry that supports this as well as leases all the really tall buildings in major cities.

Heck, Rig's R Us may even let you rent the rig with monthly payments for 5 years and then give it back!

Chip-

Don’t confuse Mike with reality.

You mean you want to talk about airplanes, not oil rigs?

You’re not enamored by this debate about taxation?

Well… ok!

We don’t track the piston markets, but I believe our system does provide data on Barons. Let me take a look and I’ll let you know if I can any insight.

I do have a prospective client that has one, they plan to sell it once we complete the acquisition of a jet to replace it.

It doesn't matter what you call it, it costs money and it is necessary for the business.


Yes, but they will pay interest. They won't let you just straight line the payments to the same total number like depreciation does.

Depreciation doesn't account for the time value of money.

Mike C.

Mike understands reality just fine, it is just that reality is depreciation penalizes businesses for buying capital equipment.

Bonus depreciation for airplanes is the way all equipment should be done, basically expensing capital purchases. It is not a gift from the treasury, it is the true offset of cost versus profit.

Mike C.

Mike understands reality just fine, it is just that reality is depreciation penalizes businesses for buying capital equipment.

Bonus depreciation for airplanes is the way all equipment should be done, basically expensing capital purchases. It is not a gift from the treasury, it is the true offset of cost versus profit.

Mike C.

A disclaimer, I am typically skeptical of data like this. That is because I know the faults of the information going in and therefore consider the results skewed.

When it comes to Barons, I don’t know that market at all, so all I can do is provide the data, with the understanding that there are variables that could make it skewed.

Based on what I see here, it appears that market has really swung towards the buyer’s favor.

I would expect the same thing for most piston singles and twins, boats, RV's, certain kinds of cars, and many other categories. Except for drills. Drills are going to be in high demand.