>From: "Daniel J. Mitchell"
> With some things, the problem is that they've already written them off
>against tax by the time they get rid of them; they depreciate them over five
>years (say) and then they've got to get rid of them because they officially
>have no value.
>
> Or something like that; the company my father works from has a big crushing
>crate in the basement where old PCs go, and again there they can't just sell
>them on/give them to schools/whatever -- the kit now has officially zero
>value, and doing anything that might get value out of them in any way isn't
>allowed.
No, no, no, no! That's not how it works!
Let me give an example. Here in the US, the federal corporate tax rate is
basically 35%. So if you chuck your spare parts inventory that costs $100,
you show a tax loss of $100 and save $35 in tax, putting $35 in your pocket
(note: you can't depreciate inventories).
If you sell off the same spare parts inventory for $25, for example, you
show a tax loss of only $75 and save only $26.25 in taxes. However, this
actually puts $51.25 in your pocket ($26.25 tax savings + $25 proceeds on
selling the stuff).
Using the PC example above, the same logic holds - if you throw it away,
there's only the tax savings from the depreciation to put in your pocket.
If you sell it, you get the tax savings of whatever depreciation and/or
loss you incur, plus you get the sales proceeds, too.
And just because something has been "depreciated" for accounting or tax
reasons, that doesn't mean it has no value. Otherwise, send me all your
Pen-Fs and OM-1s as they must certainly be depreciated down to no value by
now - and you HAVE to get rid of them!! I'll pay the postage!!
While there may be a logical strategic or business reason to do so, there
is no valid accounting or tax reason to throw away stuff rather than sell it.
Steve Troy
CPA & MBA
(sorry - no bagpipe content)
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