You know better than that!!
A business cannot expense a capital expenditure.
A business can only charge as an expense the annual increment of depreciation on the item of capital expenditure. So if the IRS requires that 15-year depreciation be used, and the company has to pay the money on delivery, then the company has a “non-cash cost” for the balance.
Estesbob can provide better expertise on this than I can, but I don’t think this is entirely so. I believe capital expenditures up to some limit (I think maybe $200,000/year) can be expensed 100% in the year of purchase as long as the asset is put into production in that year.
Reminds me of at least one tax trick that actually is the result of negligent inventorying or the relative value of old beef cows to new calves. (Estesbob can tell us if it’s wrong). If one buys, say, breeding age cattle, he can directly expense those costs in that year. That’s a deduction against ordinary income.
If one sells breeding stock, that’s capital gain. If that cow, purchased this year, is sold next year, it might be expensed at, say, 35%, and the tax on the gain is only 15%. Now, I realize that the rancher is supposed to pay ordinary income tax on the sale proceeds of that cow, to the extent of his purchase price that he deducted in the prior year. No question about that. But since, in reality, few ranchers really know which cow is the one they bought last year, or the origins of the cow they sell this year, and “cull” for reasons unrelated to that, and typically also raise breeding stock, they tend to pay capital gain on that for which they received a deduction against ordinary income. As long as they keep a viable herd going, particularly an expanding herd, there’s really no way they’re going to be questioned on it. It is absolutely impossible to avoid having a cow die every now and then. Some cows will keep bearing good calves until they drop dead, and a producing cow will rarely be sold, if she’s having good calves. For some, the only reason for “culling” is obvious ill health, non-production, or the production of obviously inferior calves. But if a cow is a good producer, most ranchers will gladly risk the loss of a cow to old age for the sake of one more good calf, because a good calf is worth more than an old cow, and the calf is always capital gain if it’s not a steer and is raised to 2 years of age. If the deducted cow dies, it’s just a zero on the books.
That whole thing has always struck me as somewhat funny, because, while some ranchers might knowingly “cheat” in this way, I truly don’t think most know enough about the identity of their animals to know whether they’re “cheating” or not. I think it’s more a matter of a rancher giving himself the “benefit of the doubt”. Who would guess against himself?
But even if the rancher knows which animal is which, if the cow is a good enough producer to keep for her lifetime, and if he has enough pasture to raise the calves to two years, he always gets a deduction at his marginal rate for what he buys, and always sells at capital gain rates. That’s a 20% “subsidy” if his marginal rate is 35%.
Now, if the rancher buys a “long-bred” cow (close to having a calf) he’s going to pay a premium for her because of it. But no account is taken of the calf by the IRS in that. So, his deduction is at his marginal rate for the full purchase price of the cow, part of which is really for the calf. Cow has calf. He raises the calf for two years, and it’s capital gain. So, notwithstanding that he “paid” for that calf by paying a premium for the long-bred cow, no account is taken of it when it’s tax time.
Also, if he breeds those two year olds, and sells them “long-bred”, no account is taken of the calf she’s about to have, and the whole sale price is capital gain, even though if the calf was sold immediately after its birth, it would be ordinary income.
I don’t even do my own taxes, being incompetent at that in the extreme. But there are some things I run across every now and then that really are fascinating.
