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Old 11-06-2006, 05:50 AM
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Default Can we make a sticky on cost of operation?

Kind of getting sick of all the redundancy. Can someone whip up a thread, and the admin make it sticky?

Include "tricky" items such as cash flow Vs. net worth(two very different things regarding truck depreciation). Taxes are also important.

Probably the biggest fumble I see in doing the math is truck deprecation Vs. truck payments.

For example, a $130,000 truck(cdn) over 5 years at 10% interest is $2750. Each year that's $33,000.

Cash flow : Well that ones easy, it costs you $2750 a month

Real Depreciation: I'd probably say $100,000 in 5 years. That's 20k a year. Much different then what you're actually paying.

Government depreciation(canada): 20% first year, 40% each year after that.

The problem with the 3 differences, is that the driver understands the first one very easily, its coming right out of his pocket. The second one is very very vague, because who knows how much your truck is worth? It probably drops 15k the moment you drive it off the lot. The third one is the stinker. I'll show why:

year 1 depreciation is $26,000. $104,000 left
year 2 depreciation is $41,600. $62,400 left
year 3 depreciation is $24,960. $37,440 left
year 4 depreciation is $14,976. $22,464 left
year 5 depreciation is $8985. $13,469 left

So the government lets you writeoff a value that is completely different from your 'cash flow' and nowhere near what the truck actually depreciates.

Now imagine in year 3-4 when the government of canada comes to you early(september) asking for next years income tax! In 4 short months you are paying 2 years worth of tax! Not only that, the 3-4th year you cannot write off as much as you are actually paying! You're paying MORE taxes, in a much shorter time frame. Yet you still have those huge payments, with no relief in sight. On top of that now those repair bills start coming in!

Or how about the 5th year. You're still paying $33,000 a year yet you can only write off $8985. This is where most people panic, and trade off their truck. HUGE mistake.

But if you actually make it, free of those huge payments, now is the time to make real money. This is when your truck depreciates the least. Your cash flow situation looks great, and your net worth looks better then it ever has(due to less future actual depreciation). Yes you will be paying more to the government, but that's how it works. You make more, you pay more.
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Old 11-06-2006, 01:20 PM
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This is exactly why I'm an advocate of buying a newish used truck for cash with a big repair account and a PM plan. Repairs are 100% deductible, the truck isn't. As far as the tax goes, there are many other things to spend your money on that contribute to the bottom line more than a new truck.
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Old 11-06-2006, 02:46 PM
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Quote:
Originally Posted by rank
Repairs are 100% deductible, the truck isn't.
Actually, it is. And different depriciations mode, just add more flexability to it!
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Old 11-06-2006, 02:59 PM
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TRuck rentals are 100% as well 8)
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Old 11-06-2006, 03:26 PM
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I thought depreciation was (in the US) of the whole value, not the value less the amount depreciated the year before.

Example: Straightline depreciation with that $130K tractor....5 year schedule would be 20% per year which =$26K per year.

If I look at it the other way it would be 20% of $130K for YR1...then 20% of $104K for YR2...20% of $83.2K for YR3...etc. This way you have not written off the original full value but 20% of each year's value.

Which way is it?
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Old 11-06-2006, 04:51 PM
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If anybody finds a GOOD Thread for a Jump off point on Costs I'll make it a sticky
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Old 11-06-2006, 04:56 PM
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Quote:
Originally Posted by geomon
I thought depreciation was (in the US) of the whole value, not the value less the amount depreciated the year before.

Example: Straightline depreciation with that $130K tractor....5 year schedule would be 20% per year which =$26K per year.
OTR trucks are depreciated on a 3 year schedule, not a 5 year.
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Old 11-06-2006, 07:56 PM
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Quote:
Originally Posted by yoopr
If anybody finds a GOOD Thread for a Jump off point on Costs I'll make it a sticky
I nominate GMAN to start a thread!
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Old 11-06-2006, 08:53 PM
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Rev...guess 5 yrs must be a Canadian thing....you're right; 3 yrs for tractor, 5 yrs for trailer. For a new tractor, that is a substantial deduction each year. That fourth year tax hit must be a real "pucker producer".

But my question still stands....are you depreciating the entire purchase amount over that period?
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Old 11-07-2006, 01:30 AM
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Quote:
Originally Posted by geomon
But my question still stands....are you depreciating the entire purchase amount over that period?
Yes - and then you pay capital gains on the sale price when you sell it.
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