When I note expenses for tax deductions, the IRS states that assets aren't considered 'assets' until they are in use by the business. As a new business, we have items such as computers, desks, supplies, etc. that we previously owned but were not technically 'in use' by the business (because it didn't exist yet). Is it okay to list all of these as assets even though they were already owned? Do they need to be depreciated for the time that they have been owned? If these can be listed as assets, can they also be considered expenses to combat taxes on profit?
Is it okay to list all of these as assets even though they wereYes. Of course, if the business is incorporated the assets have to be transferred to the business (i.e.: you "sell" your asset to your corporation as part of your investment)
Do they need to be depreciated for the time that they have been owned?Of course not. You only depreciate the asset when it is in business use. If you also use it for your personal use - you have to pro-rate the depreciation.
Since they've been used prior to becoming business assets, you need to figure out the basis for the depreciation, which is the fair market value at the time of transfer of the asset to your business. If you're a sole proprietor - then it is your own basis in the asset (i.e.: how much it cost you).
Consult your tax adviser on the details, that's the kind of things the IRS like to pick on. If they can show that you're not really using a personal asset in the business while expensing it - they can claim fraud on you, so be careful.
If these can be listed as assets, can they also be considered expensesThe depreciation is deducted as expense. You cannot use Sec. 179 deduction for used assets.
to combat taxes on profit?
I would sell them to your company and make the company owe you for the equipment. When the company is in profit it will pay you back on that loan (its not income for you personally its loan repayment). Make sure to depreciate them and write up the terms of the loan. These now become assets in use to your company and your company also now has debt to its investors it will need to pay back. Loan payback is deductible from your income.
If you have partners make sure they agree with this as well as write something up on how to divided up these assets if the company turns sour so that your partners don't get your computers for free.
Might be another way to do this but this is how I've done asset swaps in the past in a few of my companies.