Entering equipment purchase with a loan

karilclee · ‎January 22, 2018

Last year, we purchased some equipment from another company on a personal note of 24,000. We paid half last year and will finish it this year. When we did it, I entered it as a long-term liability of 24,000 and classified each payment toward that liability. However, as I am working my taxes, I realized that it didn't expense out the payment. It shows the remaining balance correctly, but we are showing a significant profit without those loan payments. What do I need to do to claim the expense of the equipment?

(I have really only used Quickbooks for basic deposits/expenses up until now, so I feel like I may be floundering a little. I think an accountant is in our future as our business grows!)

I appreciate your help!

Rustler · ‎February 01, 2018

Let's back up some.

You purchased a fixed asset with a loan (no downpayment mentioned so I expect there is none)

That is a fixed asset type account and a liability account, both should have the same value, a journal entry is one way to do it after the accounts are created

debit fixed asset, credit loan liability, $$$$

Payments do affect the loan, they are NOT an expense. Unless there is interest on the loan, in that case the payment is split, $$$$ to interest expense, and $$$ to the loan liability. So the question is, is there interest on the loan?

You do not write off a loan at all. The fixed asset is subject to annual depreciation per the tax authority (IRS pub 946 if you are in the US)

You can for some types of fixed assets use Section 179 to write off the whole fixed asset value - but that does not affect the loan, you still have to pay it. This is a question for a tax accountant to help you with.

The deminimus amounts for a c-corp was changed to 5,000 as I understand it, double check with your tax accountant. The rest of us have a deminimus of 2,500.

View solution in original post

NDLL · ‎February 01, 2018

I am guessing you entered the liabilty account usiang the begining balance feature. That was the error. Delete that transaction and instead create a journal entry for the purchase. you should expense the equipment out as an asset and the other side of the JE will be the liability account (creating the beginig balance). It still will not show up on your p&l b/c it is an assest but, if you provide a copy of the note to your CPA they will write it off on your taxes.

Also, keep in mind you do not usually deduct total total amount you pay for an asset off when you purchase it. Anything over a certin amount needs to be deperciated on your tax return over several years (we are a C Corp - so anything over $500).

However, for 2017 you can actually deduct the entire purchase or half of it you paid if you would like - just mention it to your CPA and discuss your options. *A lot of us are taking advantage of the exception congress has given while it is still here. In 2017 you could have purchased a truck on a 5 year loan and written off the entire blance all that year - of course this increases your profits for later years when you make the payments and do not get to write off the expense, but it has worked in stimulating the ecomomy.

Hope this helps.

Rustler · ‎February 01, 2018

Let's back up some.

You purchased a fixed asset with a loan (no downpayment mentioned so I expect there is none)

That is a fixed asset type account and a liability account, both should have the same value, a journal entry is one way to do it after the accounts are created

debit fixed asset, credit loan liability, $$$$

Payments do affect the loan, they are NOT an expense. Unless there is interest on the loan, in that case the payment is split, $$$$ to interest expense, and $$$ to the loan liability. So the question is, is there interest on the loan?

You do not write off a loan at all. The fixed asset is subject to annual depreciation per the tax authority (IRS pub 946 if you are in the US)

You can for some types of fixed assets use Section 179 to write off the whole fixed asset value - but that does not affect the loan, you still have to pay it. This is a question for a tax accountant to help you with.

The deminimus amounts for a c-corp was changed to 5,000 as I understand it, double check with your tax accountant. The rest of us have a deminimus of 2,500.

nature123 · ‎February 23, 2020

purchase of machinery be taken as long term liability and deprecation of machine/equipment as expense.

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Entering equipment purchase with a loan