An older man that I have known for 40 years has a JD round baler for sale, it is a good old baler and the price is right. I want it for a back up and agreed to buy it for the price he named, he wanted cash, no problem, but he does not want to give me a bill of sale. I want the bill of sale for tax deduction records and he does not want to give me one because he says he will then owe tax on the sale price. I told him he will not owe any tax if he did not depreciate the baler when he bought it which he did not because he does not file taxes and has not in 20 years because all he has for official income is Social Security, his calves are sold under his nephews livestock company and he pays for all imputs cash. He told me his son in law, who is a lawyer, told him he would owe taxes on any of his equipment he sold, I have never heard of owing taxes on non depreciated property and if on depreciated property only up to the remaining percentage of asset life.
- Thread starter LAA
- Start date
Anonymous-0
Well-known Member
Even if he did have to file on it, it should fall well within his allowable... I'd be worried about that crackerjack SIL coming at you to produce a BOS or turn over the equipment.....
What about you just doing up a receipt for money received (with the baler ser# (??) on it and have him just sign for the money. Should cover you and he won't be stuck with anything like an invoice that he produced... Could also be that the SIL doesn't want him selling stuff that he'll be inheriting sooner or later....
Good Luck....
Well, that is a complicated mess, he's trying to skirt the law, so yes you are right, but he don't want no paper trail.
When was the last time any of this paperwork was really looked at, he has no realistic problem giving yuou a hand written bill of sale, you won't be reporting his name on your taxes or nothing, so it's all just paperwork sitting in a drawer for 3 years....
But, if his mind is made up, going to be hard to change that, and he gets rattled about his whole ploy of tax avoidence blowing up on him, so - you probably won't get far with reality & such.
--->Paul
When was the last time any of this paperwork was really looked at, he has no realistic problem giving yuou a hand written bill of sale, you won't be reporting his name on your taxes or nothing, so it's all just paperwork sitting in a drawer for 3 years....
But, if his mind is made up, going to be hard to change that, and he gets rattled about his whole ploy of tax avoidence blowing up on him, so - you probably won't get far with reality & such.
--->Paul
rd 2N in mo
Member
Try asking for a bill of sale for $1.00.
That protects you for the line of ownership and provide him a minimun sale cost if he is ever asked about it.
that way it can be considered as a scrap item.
That protects you for the line of ownership and provide him a minimun sale cost if he is ever asked about it.
that way it can be considered as a scrap item.
M-MAN
Well-known Member
- Location
- Bostic, NC
He's worried about owing taxes when he doesn't even pay them? Sure! More likely he wants to stay out from under the irs's radar screen.
Tom-NorthCenTX
Member
It is his decision, not yours. Buy on his terms or move on. Respect the man. If you kept asking me for what I did not want to give you, I would just withdraw the sale offer and sell it to someone else. Tom
fixerupper
Well-known Member
The baler might make you more money in the long run than you will save in taxes if you are able to deduct it. You say you want it for a backup, so if your main baler breaks and rain is coming, this Deere baler will get the hay up before it gets wet. The Deere baler made you money that you would have lost without it in that circumstance.
I don't know what your tax bracket is, but being able to deduct the baler might not save you all that much money in taxes unless your income is teetering on getting into the next higher bracket and the baler purchase will keep you in a lower bracket.
You don't know how much extra money the baler can conceivably make you, but you can figure out pretty closely how much it can save you in taxes. It's a gray area. I'd just give him the greenbacks and take the baler home without papers. I personally deduct every little nit-picking thing I can and every penny is kept track of in a computer program, and not deducting a larger item is painful, but sometimes it's better in the long run to bypass the deduction. Jim
I don't know what your tax bracket is, but being able to deduct the baler might not save you all that much money in taxes unless your income is teetering on getting into the next higher bracket and the baler purchase will keep you in a lower bracket.
You don't know how much extra money the baler can conceivably make you, but you can figure out pretty closely how much it can save you in taxes. It's a gray area. I'd just give him the greenbacks and take the baler home without papers. I personally deduct every little nit-picking thing I can and every penny is kept track of in a computer program, and not deducting a larger item is painful, but sometimes it's better in the long run to bypass the deduction. Jim
In my experience, most people don't want to be bothered with the math and the complicated tax questions.
You can make the most logical argument in the world, but you simply can't move somebody that gets it in their head that they want to "keep it simple".
Do the math. Figure roughly how much it'd lower your taxes if you were to buy it - then subtract that number from your offer price.
Because if you do buy it at the current price, it IS costing you that much more in unrealized savings, without the bill of sale - compared to buying another one at the same price that you can claim.
Unless you know roughly what that number is, you're not ready to negotiate with him.
You can make the most logical argument in the world, but you simply can't move somebody that gets it in their head that they want to "keep it simple".
Do the math. Figure roughly how much it'd lower your taxes if you were to buy it - then subtract that number from your offer price.
Because if you do buy it at the current price, it IS costing you that much more in unrealized savings, without the bill of sale - compared to buying another one at the same price that you can claim.
Unless you know roughly what that number is, you're not ready to negotiate with him.
Ellis Kinney
Well-known Member
It could be a matter of pride. I bought an M in 1973 up in Indiana. I asked the older gentleman if I could have a reciept, bill of sale, and he was insulted. I had questioned his integrity. Ellis
Nathan (SD)
Member
He went to a lawyer for advice about a illegal transaction? Lawyers by law have to give LEGAL advice. His son-in-law wasn't gonna risk his liscense over his f-i-l nickel and dime problems. That was his LEGAL way of telling him ,get rid of it and don't leave a trail.
I have plenty of respect for the man -- did you not read that I have known him for 40 years? Who said I kept asking him for what he did not want to give? Where did you learn reading comprehension? I did not argue with his terms of sale, I did not buy because of the chance, hopefully slim, that I am audited in which case I want to be able to prove a deduction. My whole point was that I have never heard of anyone who sells a piece of personal equipment being liable for income tax on the sale. Same as if you sold your lawn mower or pick up truck.
It is very simple what it will save on taxes, it is 100% deductible the first year as a section 179 deduction, so, a $10,000.00 baler will offset $10,000 worth of farm income on schedule ''F''. In years of high calf or commodity prices purchased equipment and improvements allow you to choose what to do with the extra income instead of the IRS.
It is not an illegal transaction, he did not depreciate the baler, it is just a piece of personal equipment as far as the tax law is concerned. A lot of people, lawyers included, do not know much about tax law, there are far more people who overpay because they are scared of the long arm of the IRS than people who cheat. His son in law is not a tax lawyer, just a regular old ambulance chaser.
Most legal ethics rules do not require a lawyer to advise the client to take the "legal" path- if he proposes to do something illegal, we are supposed to tell him of the possible consequences, and nothing prevents us from giving him our opinion of the chance of getting caught.
In this case, he would have no tax liability if selling for less than he paid for it, and no depreciation recapture if he never depreciated it in the first place. His possible jeopardy comes if YOU get audited, and auditor then investigates him, to see if he reported the sale properly on his income tax. At that point, his situation unravels, and he's in some trouble. He's wise not to leave a paper trail, at this point.
There are lots of transactions that are "under the radar" these days. Most often, the guy will have some stuff on the up and up, but not everything goes on the books, and equipment is bought and flipped for a profit, without any records. Very hard for IRS to catch up to that- they don't have anything to work with.
What I don't know is how often IRS "cross checks" the other side of a transaction- I suspect not very often, unless they are discovering that the guy they are auditing is a crook, then they'll begin to suspect every transaction.
In this case, he would have no tax liability if selling for less than he paid for it, and no depreciation recapture if he never depreciated it in the first place. His possible jeopardy comes if YOU get audited, and auditor then investigates him, to see if he reported the sale properly on his income tax. At that point, his situation unravels, and he's in some trouble. He's wise not to leave a paper trail, at this point.
There are lots of transactions that are "under the radar" these days. Most often, the guy will have some stuff on the up and up, but not everything goes on the books, and equipment is bought and flipped for a profit, without any records. Very hard for IRS to catch up to that- they don't have anything to work with.
What I don't know is how often IRS "cross checks" the other side of a transaction- I suspect not very often, unless they are discovering that the guy they are auditing is a crook, then they'll begin to suspect every transaction.
Buy the baler and withdraw the exact amount of cash from your bank account and pay the man. You then document the withdrawal ticket as "PURCHASE of BALER" and identify the baler in some manner (and the seller). You can then depreciate or 179 expense the baler for that amount just as you would any other peice of equipment.
If you get audited the IRS may question that specific transaction but simply explain what happened. They know the baler had to come from somewhere (unless they want to try to accuse you of stealing it) and if the price is reasonable it won't be an issue.
If you tried to do the same with all your euipment purchases this will not work, but if its the only one in the course of a year or several years it passes the "reasonable" test.
If you get audited the IRS may question that specific transaction but simply explain what happened. They know the baler had to come from somewhere (unless they want to try to accuse you of stealing it) and if the price is reasonable it won't be an issue.
If you tried to do the same with all your euipment purchases this will not work, but if its the only one in the course of a year or several years it passes the "reasonable" test.
He's legal. He is 86 years old, he does not have to file a return because Social Security and the sale of a few calves a year are his only income, no where near the threshold amount, and, he has been on Social Security over 20 years so the IRS ain't coming after him.
If he never sold any cattle or farm products, you're right- it would be a piece of personal equipment. But he's farming, and not filing on it- so its income producing equipment, and not reporting the sale will be a small part of the much larger problem he will have if caught.
He is not required to file a tax return because his sole income sources are (1) Social Security and (2) the sale of a few raised calves, say maximum of 8 head per year, he does not meet or exceed the threshold income limits. Even if he did, he did not depreciate the baler when he bought it because he was not filing tax at that time and a baler is not an income producing piece of equipment if he is not selling hay, but again, even if he did meet the income thresholds selling the baler would still be a moot point as far as tax liability goes because he did not take a depreciation deduction on it when he bought it new.
Yeah, if he doesn't meet the income threshold to file, then its all a moot point.
But IRS is strange duck- If he was filing (or should have been), they want you to depreciate equipment used in a business or farm, even if, in the long run, it would have made no difference tax wise. If you're audited, they'll reconstruct it, back to the date of purchase, set up a depreciation schedule, give you the deduction in each of the ensuing years, then charge you depreciation recapture in the year of sale (up the the amount you had depreciated), then capital gain on any amount you received in excess of the purchase price.
You wouldn't get far with the argument that the baler is a "personal" item so long as you don't sell hay (I'm assuming he fed the hay to the calves). Anything used for the production of income is a depreciable asset, in the eyes of the IRS. Of course, this only comes up if you are required to file.
One side note- This whole thing only comes up when you sell the piece of equipment. Nothing says you have to depreciate it, if you plan on keeping it forever. It certainly is to your advantage to depreciate it, to get the tax deduction- but it only becomes an issue if you sell it.
But IRS is strange duck- If he was filing (or should have been), they want you to depreciate equipment used in a business or farm, even if, in the long run, it would have made no difference tax wise. If you're audited, they'll reconstruct it, back to the date of purchase, set up a depreciation schedule, give you the deduction in each of the ensuing years, then charge you depreciation recapture in the year of sale (up the the amount you had depreciated), then capital gain on any amount you received in excess of the purchase price.
You wouldn't get far with the argument that the baler is a "personal" item so long as you don't sell hay (I'm assuming he fed the hay to the calves). Anything used for the production of income is a depreciable asset, in the eyes of the IRS. Of course, this only comes up if you are required to file.
One side note- This whole thing only comes up when you sell the piece of equipment. Nothing says you have to depreciate it, if you plan on keeping it forever. It certainly is to your advantage to depreciate it, to get the tax deduction- but it only becomes an issue if you sell it.
Nathan (SD)
Member
Your reply was what I was thinking about. A deposit or cashed check of any kind is cosidered income to the IRS. It is up to you the taxpayer to prove why it is not taxable. And this would trigger the whole chain you described to: a.) try to prove their was no gain on the baler and b.) open a can of worms that could not be explainable about other transactions.
I get your point on income producing equipment. Another point is while the hay produced with the baler is fed to income producing calves the hay is actually an income offsetting expense because it is fed to the calves and the only deductions for home produced/raised calves is the actual expense of keeping their mothers and feeding the calves. In other words, if my home raised hay is cheaper to produce than boughten hay then I am realizing more net income and therefore paying more tax so my baler is actually making the IRS money, assuming that no depreciation was taken of course.
Nathan (SD)
Member
That is a good clarification.I was think more taht a lawyer cannot recommend evading the law. That would make them a accessory if a crime was then commited. Is that not correct?
Nathan (SD)
Member
Sale of personal property is still cosidered income. In the event of the audit you still have to prove the purchase price no matter how long ago. If you sold for less than purchase price. No tax. If you sold for more than purchase price. Tax on gain. If you sold and cannot provide documentation. Tax on full amount.
No audit. No problem. Chance of audit. Slim
To quote:My whole point was that I have never heard of anyone who sells a piece of personal equipment being liable for income tax on the sale.
There, now you have heard of it.
No audit. No problem. Chance of audit. Slim
To quote:My whole point was that I have never heard of anyone who sells a piece of personal equipment being liable for income tax on the sale.
There, now you have heard of it.
A deposit or cashed check of any kind is not considered income to the IRS because they will not have access to the vast and greatest majority of them, your income is what you report and the IRS will not question it very closely unless a payer reports otherwise or you are obviously and grossly living above your means, even then they would have to find out about your lifestyle. Businesses and tradesmen are required to report cash transactions in excess of $10,000 on IRS form 8300, banks are required to report deposits in excess of $10,000 even if broken into smaller deposits if in the same account and a pattern is likely. Banks do not report or track smaller deposits unless under a court order, the IRS could not possibly track down even 1/100 of 1% of the daily banking transactions in the USA. Except in the most obvious cases of fraud under audit I cannot imagine many scenarios where the IRS would press someone to prove every deposit, in the first place they would have to subpoena your bank records to even find out unless you took the records to them.
Almost 40 years ago, now, my wife and I bought a horse trailer from a local guy. Several YEARS later, I got a letter from Dept. of Internal Revenue, Special Investigation Unit. Talk about making your blood run cold. . .
Inside was a copy of the check I had written to the guy for the trailer, and several questions- Was this the full transaction? Did I give anything else of value for it? Had I had any other transactions with the guy? What was his reputation in the community? Etc.
I was so relieved that it wasn't me they were after, that I didn't really think about the copy of the check at the time- they had just gone through his records, etc. But then it struck me- he wouldn't have had a copy of the check- he just deposited it or cashed it. IRS must have learned of the transaction somehow, then figured out who it was with (me), tracked down my bank account, and got the check from my bank, all without my knowledge! Kinda like the old Farside cartoon of the two guys behind the overturned covered wagon, with Indians attacking- One says to the other, "They're lighting their arrows- can they DO that?"
I thought your bank records were safe, except for subpeona after notice and a hearing. Not so with IRS, apparently- I guess they can do pretty much whatever they want.
BTW, the guy went to prison for a pretty long stretch. His name still pops up once in awhile, always in connection with a questionable transaction years ago.
The trailer transaction was legit, I guess- we had it for several years, then sold it, and no problem with the title.
Inside was a copy of the check I had written to the guy for the trailer, and several questions- Was this the full transaction? Did I give anything else of value for it? Had I had any other transactions with the guy? What was his reputation in the community? Etc.
I was so relieved that it wasn't me they were after, that I didn't really think about the copy of the check at the time- they had just gone through his records, etc. But then it struck me- he wouldn't have had a copy of the check- he just deposited it or cashed it. IRS must have learned of the transaction somehow, then figured out who it was with (me), tracked down my bank account, and got the check from my bank, all without my knowledge! Kinda like the old Farside cartoon of the two guys behind the overturned covered wagon, with Indians attacking- One says to the other, "They're lighting their arrows- can they DO that?"
I thought your bank records were safe, except for subpeona after notice and a hearing. Not so with IRS, apparently- I guess they can do pretty much whatever they want.
BTW, the guy went to prison for a pretty long stretch. His name still pops up once in awhile, always in connection with a questionable transaction years ago.
The trailer transaction was legit, I guess- we had it for several years, then sold it, and no problem with the title.
Right - and to use an round number if you're paying 20% taxes, that's 2000.00.
So you buy a 10,000 baler with no deduction, it costs 10,000.
If yoy buy a 10,000 baler with the deduction it only costs you 8,000.
So for a $10,000 baler that you can't deduct, I'd only offer 8000. Or pretty close to it.
And that was my point - just offer what you really want to end up paying for it, and forget HIS tax situation.
Other factors obviously come into play - maybe the price is real low for what it is - if it's a $15,000 baler and he's offering it for 10,000 -
You're saving $5000 - and losing 2000 by not being able to deduct it - but you'd still come out 3000 ahead in that deal.
So you buy a 10,000 baler with no deduction, it costs 10,000.
If yoy buy a 10,000 baler with the deduction it only costs you 8,000.
So for a $10,000 baler that you can't deduct, I'd only offer 8000. Or pretty close to it.
And that was my point - just offer what you really want to end up paying for it, and forget HIS tax situation.
Other factors obviously come into play - maybe the price is real low for what it is - if it's a $15,000 baler and he's offering it for 10,000 -
You're saving $5000 - and losing 2000 by not being able to deduct it - but you'd still come out 3000 ahead in that deal.
> If you get audited the IRS may question that specific transaction but simply explain what happened.
However, the auditor will most likely contact the seller to try to verify the transaction. When contacted, the seller may just say "What's a baler?!" and then you'll have problems.
However, the auditor will most likely contact the seller to try to verify the transaction. When contacted, the seller may just say "What's a baler?!" and then you'll have problems.
Pete in MD
Well-known Member
- Location
- Central Maryland
If you'd be satisfied with a simple hand written bill of sale from him, couldn't you make one yourself and sign his name to it? Just asking.
Nathan (SD)
Member
I am not really talking about claiming income. I am talking about defending unreported income. No. I don't report anything extra either, but in the event of an audit I am prepared to explain anything extra that IRS would find.
On page 35 bottom of middle column in Pub.525 it explains sale of personal property. Gains are taxable. Step 2,the only way to prove it aint all gain is to provide the documents from purchase no matter how long ago it was.
Which page states the presumption of loss?
On page 35 bottom of middle column in Pub.525 it explains sale of personal property. Gains are taxable. Step 2,the only way to prove it aint all gain is to provide the documents from purchase no matter how long ago it was.
Which page states the presumption of loss?
When you sign your return under penalty of perjury you are verifying your income as reported, a sale of personal property that does not result in a net capitol gain is not income, it is partial recoupment of monies previously paid out for the item in question, therefore, no reportage as income required or expected. The presumption of loss stems from actual tax court cases where the courts ruled in favor of tax payers who were challenged over yard sale proceeds, personal automobile sales etc, in all of these cases the tax payers were already under audit for various other reasons. There is a body of law sufficient to allow the average transaction to pass unchallenged. People are free to file a schedule ''D'' with every tax return and itemize and exclude every personal sale item if they choose to do so but it is mostly an exercise in futility. In this particular case it does not apply in any stretch of the imagination because the old man does not make enough income to file a tax return, the sale of this baler would not change that fact. He is unjustifiably scared of the IRS just as tens of millions of other Americans are, imtimidation is their ace in the hole. This is still a constitutional republic and the IRS cannot run rampant in your personal records without some sort of justifiable cause and due process.
cannonball
Member
Carry you some witness that will see you hand over the money...
Ralph Bauer
Well-known Member
My bank jumps through hoops if it is 3000/day, got to give them my DL and they document it in a separate file, I think it is because of money laundering under Homeland Security .... and I have been banking there for 15 yrs!!!
Go figure! Ralph in OK.
Go figure! Ralph in OK.
Nathan (SD)
Member
If the IRS finds any unreported income, I mean any. You gotta have a darn good reason why it aint taxable. When you get audited, the first thing they ask for are your bank statements for all accounts with your name involved. When you get audited you will see how it works.
Ultimately an 84-year-old man is as set in his ways and opinions as anyone can get. He is going to do what he wants to do the way he wants to do it, and by God he has earned that right.
Don't hold much hope for changing his mind.
Buy the baler and claim it, or don't claim it. Just don't falsify documents or waste any more time trying to change his mind. You're much better off not having any documentation at all than you are having falsified documentation. (i.e. a made-up bill of sale with the old man's "signature").
Don't hold much hope for changing his mind.
Buy the baler and claim it, or don't claim it. Just don't falsify documents or waste any more time trying to change his mind. You're much better off not having any documentation at all than you are having falsified documentation. (i.e. a made-up bill of sale with the old man's "signature").
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