Re: OT-tax's? supplies or maint and repair?

Posted by Paul in MN on January 09, 2012 at 12:05:02 from (174.20.146.225):

In Reply to: OT-tax's? supplies or maint and repair? posted by Dave from MN on January 09, 2012 at 09:48:56:

I am not a tax advisor, but just a farmer who has done his own taxes for more than 40 years.

So here is my take on this question. I don't think it makes much difference which catagory you put the questionable item(s) into. Both catagories are fully deductable in the same manner. IRS auditors may have a personal preference for how you do it, but the bottom line is that neither catagory gives you or them any $$ difference. When they audit, they are first looking for evidence of fraud, and then to see that you follow the rules for depreciation vs expensing off some major item (which can be done under the Section 179 rules, and can be a very good advantage to the taxpayer).

So my own interpretation is that consummed items which go out the door as "product" and need cost items to make that product saleable goes under "supplies". Examples are baler twine and parts used to repair someone else's equipment if you do any of that. But any items purchased to repair and maintain my own equipment goes under "repairs". If you buy bulk bolts and nuts some for immediate use in repairing some piece of equipment, and then toss the rest into a bin for future repairs, then all goes under the "repair" catagory. But if you are buying the same bulk order of bolts for the production of some item you produce "for sale", then those bolts are "supplies".

The repair catagory is a wide range of deductable items. If you take your haybine to the dealer for annual service, and end up with a $1500 bill for repairs, new sickle teeth, new belts, a dozen teeth for the reel, and a full set of rock guards. So you deduct the entire bill as a "repair". But if you have your own shop, and do the same work in your shop, then you have maybe $500 in parts, and some cost in welding gas (for cutting rusted bolts), some cost for the air wrench and compressor, some cost for the hand tools, etc. So when I buy a new replacement air wrench or replacement hand tools, or welding gas, it goes into the "repairs" at the time it is bought. So in fact my "repairs" costs are higher than my cost just for the parts, but probably much less than the cost for having the dealer do the job in his shop. But be careful to NOT declare your time value (in $$) for the work you have just done on that haybine. If you deduct say $700 for your own labor, then you need to be prepared to declare that same labor as a miscellaneous income elsewhere on the 1040, and that probably becomes a disadvantage to you.

I have stood for many audits in the late 70's and 80's, but there was never any question about the way I allocate my cost items to either "repairs" or "supplies". But they sure liked to mess with the depreciation schedules as to whether an item was a 3, 5, or 20 year item. The rules for depreciation are goofy, and even 2 different IRS auditors may not agree on how to handle a specific item.

Best of luck in getting it done!

Paul in MN

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