Re: Re: Re: Re: Re: Writing off a new horn


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Posted by Rick Denney on January 28, 2004 at 12:56:01:

In Reply to: Re: Re: Re: Re: Writing off a new horn posted by Urbie Watrous on January 27, 2004 at 17:52:59:

Yes, I've heard that, too, and I'm fully aware of the opportunity cost of money. It assumes that you pay it back at the same rate you deduct it, among other false assumptions.

But I think it is poor stewardship for a person to set themselves up to get little bits of money every year now (or even all at once), and in return have to send in a big chunk of money in the future. It is much better to set aside little bits of money now so that in the future the big chunk comes to you. Then, you can buy anything you want. Taking a depreciation deduction for something that doesn't depreciate is like borrowing money from the IRS, and if you have to pay tax on the capital gain at twice the tax rate you paid when you took the deduction, it's like paying 100% interest, plus the time value of money.

Plus, who is going to invest the money they get back from the IRS? Almost nobody does. Thus, it's not a matter of having the money now so you can invest it wisely, it's a matter of having the money now so you can buy things you'd have done without had you not had the money, so that later you can pay it back at a higher rate. It's a bad habit for people who want to maintain control over their own money.

I'm all for paying as little tax as possible, but I measure that over a period of years, not just with the next tax return. What I'm suggesting is the way to pay the least tax over a period of years. I added up all the deductions my wife received (on the basis of bad advice) on rental property, and it was a fraction of what we had to pay on the capital gain when we sold it. Again, it was a situation where the deduction was taken against a low tax rate based on her single income, and paid back at a high rate based on much higher two-person income.

With all due respect to your accounting prof, I'll take the lessons of my scars any day over the teaching of a college professor whose money it isn't.

Rick "who has learned this the hard way" Denney


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