13 Jun 2013, 7:09 AM
I own a company that offers Free Texas Hold...
I own a company that offers Free Texas Hold 'Em games to bar/restaurant owners as a form of entertainment for their patrons. I supply the poker tables used, and rather than purchase these tables from a company that sells them, I purchase the raw materials and tools and build them myself. My question is in regard to the proper accounting treatment for these tables. I understand that they are considered equipment and are subject to depreciation. What I am wondering is the value at which I may record these as equipment. Am I limited to valuing them solely based on the total cost of the raw materials I purchased or is it OK for me to add to the raw materials/tools cost a fair market amount for my labor that was necessary to build them? For example, say it cost me $175 for the wood, padding, felt/vinyl, screws, etc.? Now, let's say it would have cost me $350 to purchase a table of similar quality from a company who makes them. Can I record this asset at $350 or am I limited to $175?
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Tax Professional's response
13 Jun 2013, 7:43 AM
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Hi and welcome to out service! You cost basis is what you actually paid - that include your actual expenses for materials, labor, tools and supplies. You may not deduct the fair market value that was not paid. If for instance you sell these tables for their fair market value - the difference between the sale price and your cost basis would be included into your income. Since tables are not sold - only actual expenses that are paid may be deducted. So considering your example - $175 would be your cost basis for depreciation purposes and deducting $350 would not be appropriate. Sorry if you expected differently.
13 Jun 2013, 7:49 AM
So with regard to the cost of the tools I had to buy to build the tables, would that amount only be included in the basis for the first table built?
Tax Professional's response
13 Jun 2013, 8:05 AM
Generally if you are using tools for your business - they should be depreciated and deducted as business expenses. If these are inexpensive toots or their expected live is less than a year - the cost is deducted in the year tools are placed in service. If tools are used specifically to build tables - the cost is divided between all tables you built during the tax year. For instance - you have deductible expenses $300 which are not specifically related to any table - but during the tax year you built 10 tables - so you will add $30 to the cost basis of each table. That is called capitalization of your expenses.
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