dominiquegreffard Posted January 20, 2014 Report Share Posted January 20, 2014 I know this is a very subjective subject but i still feel this is something that is worth discussing. After some calculations i come up with 17,5% of my total revenue went solely for gear purchases and maintenance in 2013. That is also around 38% of my overall rental revenues for that same year. This doesn t include other expenses like transportation and such. I never really planned any percentage really but more purchased with the technical needs of my gigs. For those of you that have been around longer than i ve been in this business (i'm going for my tenth year now) how do you plan your purchases if you do. Do you aim for a certain percentage and/or do you go for a minimum amount for your tax returns? Thanks for sharing thoughts. Quote Link to comment Share on other sites More sharing options...
studiomprd Posted January 20, 2014 Report Share Posted January 20, 2014 geffard: " how do you plan your purchases " I suspect a lot of impulse + bank balance... Quote Link to comment Share on other sites More sharing options...
Jack Norflus Posted January 21, 2014 Report Share Posted January 21, 2014 I generally buy what I need when I need it and let my accountant sort it all out. Some years the percentage is high and some years it is low. Quote Link to comment Share on other sites More sharing options...
ProSound Posted January 21, 2014 Report Share Posted January 21, 2014 I generally buy what I need when I need it and let my accountant sort it all out. Some years the percentage is high and some years it is low. +1 this is how I always operate if I need something for a job I purchase and let my tax professional deal with it Quote Link to comment Share on other sites More sharing options...
dominiquegreffard Posted January 21, 2014 Author Report Share Posted January 21, 2014 That s what i ve been doing as well. I was wondering if some of the guys took a more strategic approach to spending to meet certain taxes criterias. I guess not really. I know for a fact that i ll probably keep on spending as long as business is as good as right now. Thanks for your opinion guys. Quote Link to comment Share on other sites More sharing options...
ProSound Posted January 21, 2014 Report Share Posted January 21, 2014 Before I do any large purchases I always consult with my tax professional to see where we are at I just drop him an email and a copy of my current Profit and Loss Statement. He will then advise Quote Link to comment Share on other sites More sharing options...
RPSharman Posted January 21, 2014 Report Share Posted January 21, 2014 If I need something I buy it, provided it will cost less to own it than rent it as needed over its lifetime. I include maintenance and interest in cost of ownership. I include inconvenience and mileage and time wasted in cost of rental. Quote Link to comment Share on other sites More sharing options...
George Flores Posted February 13, 2014 Report Share Posted February 13, 2014 Remember that lovely word "Depreciation". This can help on your tax returns with equipment you hold onto over time. However, the basic rule is as Jack said, some years it'll be more, some years it'll be less. Quote Link to comment Share on other sites More sharing options...
stevegrider Posted February 13, 2014 Report Share Posted February 13, 2014 +1 to RP Sharman's philosophy. Quote Link to comment Share on other sites More sharing options...
Jan McL Posted February 13, 2014 Report Share Posted February 13, 2014 Have only recently seriously plugged into my role as entrepreneur, so the way I've done things changes with any luck. Or not. With a 2013 curb on buying major pieces, depreciable gear/1099 income was 25%. All in with bits and bobs, closer to 1/3. Curious how you figure a piece of gear will pay for itself, Mr. Sharman. There are a multitude of kinds of gear purchases: That which you require in order to do a specific job. That which will enable you to accept the kind of work you wish to do in future. That which makes your current jobs easier/better/more elegant. That which makes you on occasion heroic (pulling out that 3rd slate, accommodate the producer's family on IFB, the bag cart). That which affords you backup in the event of failure (recent 3rd R1a purchase saved our butts when one went down). Recently added for the 2nd time a 3rd slate (long story). For TV/film, 2 slates are typically included in package. Charge $50/day for 3rd slate. Never calculated how many days it would take to pay if off, but 22 days will do it. Expect to be able to pay it off in rental within 12-18 months. That seems OK, right? For short-form gigs, only one slate is included. Added a 2nd MacBook Pro as backup as my 2011 box ages. Now leave the old box with the cart, reducing the weight of my bag and wear/tear on it. How do I calculate return on such a piece of equipment since I don't charge for it? How to calculate the return on a 3rd/backup R1a that I can give to a playback mixer for our private comms? Just musing really. Trying to get my head around being a better CFO. Thanks for asking the question, Dominique. Quote Link to comment Share on other sites More sharing options...
RPSharman Posted February 13, 2014 Report Share Posted February 13, 2014 Jan, It's not necessarily about paying for itself as it is costing less than renting. Obviously, you and I and others who do what we do are getting the same amount for rental regardless if we go out and buy new Zaxcom or SD stuff for our "general" package. I'd think a lot of us have paid for our gear already, so new investments pay for themselves quickly. What I'm referring to are things like extra slates, or earwigs, or speakers, or Lockits, etc. I try to think about how much it would cost to own vs. rent over a few years. Let's say you pay 10% interest on gear which cost $1000, and pay 5% annually for service. You'd have to pay $50/day to rent it (plus inconvenience, etc.). If you think you'll rent one 3 times in a year, it makes more sense to own it, especially if you can charge production the rental. Sorry that wasn't eloquently put, but you get what I mean. Robert Quote Link to comment Share on other sites More sharing options...
Toy Robot Posted February 13, 2014 Report Share Posted February 13, 2014 Dominique, it's an excellent question, however I reject the premise that you have to have been doing this for longer than 10 years to have any business sense or possible viewpoint on the matter, so here goes... A few things I believe regarding owning equipment vs. renting (and I'm touching on points both from the OP and some related responses): My investment horizon is longer than one year. I am in this industry to stay unless something major happens and I come into a lot of money in another way. Therefore, I do not have the need to pay off a piece of gear within a limited time frame (say one year). What timeframe I consider reasonable to pay off a piece of equipment and have that equipment yield positive ROI is a personal choice, and there is no single number for all pieces of gear. Some earn more than others, and at different rates to boot. Some I continue to rent, others I buy outright for many of the reasons people have listed above. Each person will have a different investment timeline to consider based on their own set of circumstances. And to the original question about taxes, remember that each gear purchase, when filed correctly on your tax return has the potential to limit your yearly tax liability. The gear that we use every day is made with extremely high quality in mind, and most of it is serviceable and will last many years. That fact, plus the consideration that I personally have no problem at all buying used gear means that I can freely make gear purchases of used quality equipment and simply decide to re-sell the gear at or near the exact cost that I paid for it should I decide that I need either immediate cash flow for different gear, or simply do not want to keep it anymore for any myriad of reasons. This equals little or no net loss upon sale (usually minus some S&H costs and a small percentage of depreciation in value over time - what the market will bear). Every location will have different rental costs. Here in NYC I consider my personal rental costs to be very high to me directly, even when fully reimbursed for equipment rental by production (as always). I consider my time to travel to a location sound house valuable, and I live in Brooklyn so the drive or subway time is not less than 45 minutes each way. Then I must pay either gas and parking ($20 average) or subway ($2.50 each way), plus my time at the rental store, and I must then check and integrate the gear into my kit for the immediate project at hand which costs me even more time, and then I must undo all of that effort after the project and reverse my rental by dropping off said gear (which is often extremely difficult since I work multiple days in a row during my busy season). All of this adds up to costs and inconveniences which to me are not without consideration. Simply put, it's a pain in the ass. In addition to the above, renting gear limits my cash flow usage for purposes which I deem necessary. Anytime you have outlaid your liquid capital and don't have the potential for an immediate ROI, you have introduced the possibility that you are losing out on having your own money earn you more money. More than once I have rented gear, and then immediately seen those same pieces of gear for sale within a few days used, at a cost that would have been ideal had I not just outlaid the money for a large rental of the exact same equipment and given my liquid capital to someone else (rental house) while I wait for a production to pay me back what is owed to me (by which time the deal on the used gear is gone). It's a mistake I don't intend to repeat often. Better to employ my capital to build my business effective immediately, and have at very least the potential for a net return upon the delivery of equipment for use on any given job which I may employ it. More oriented to the original question (sorry for derailing too much): You simply have to do what you can afford to do and what you are comfortable with. On the most basic level, the equipment we use are the tools of the trade which allows us to earn our money. Increased toolset equals potentially increased day rates and complexity of projects we can accept. And finally Dominique, if I read your calculations on your OP correctly one can deduce the following: You made more than you spent for both total revenue and rental revenue - also that your rentals alone are paying for both new gear and the upkeep of existing gear. You reduced your tax liability. You have new gear which potentially in your market allows you to do new jobs and earn a higher day rate. You have increased your knowledge base for the purposes of using said new gear. You are smart enough to want to know if you are growing your business properly. I see this as a total WIN for you on every level. Quote Link to comment Share on other sites More sharing options...
Marc Wielage Posted February 14, 2014 Report Share Posted February 14, 2014 Very wise comments from Alex above. I will also point out that it's possible, on occasion, to get such a big whopping job it's possible to pay for a huge chunk of the gear from that one project, and still leave you room for expenses and savings. It's all luck and timing. Another big factor is the alarming rate at which products are getting obsoleted these days. It's worse for camera than it is for sound. The two things that retain their value for a long time are lenses and microphones, and maybe to a lesser degree, wireless transmitters and receivers (depending on blocks). But mixers and recorders... man, that's a volatile area. Compare what cost $15,000 ten years ago, and what $5000 will buy you today... or even $3000. Quote Link to comment Share on other sites More sharing options...
studiomprd Posted February 16, 2014 Report Share Posted February 16, 2014 marc: " The two things that retain their value for a long time are lenses and microphones " to that I would add: good lights, and maybe even durable grip equipment... Quote Link to comment Share on other sites More sharing options...
Joshua Anderson Posted February 16, 2014 Report Share Posted February 16, 2014 But mixers and recorders... Digital Mixers. Analog mixers are a bit more immune, provided you're keeping up to date on routing and output needs. Basically, anything with a computer is on the clock towards obsolescence. Josh Quote Link to comment Share on other sites More sharing options...
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