Originally Posted by Here4AGoodTime
That all makes sense.
At what point do most people stop figuring their initial infrastructure cost into their cost-per-egg, or cost-per-pound values?
If you generate actual revenue, you subtract the expenses associated with producing your product (feed, labor if you hire anyone, etc) from the revenue to get your "contribution margin" (sometimes called operating revenue), ie the amount of money you made to go against your capital investment and/or back to you as profit. Of course, all of that goes into your pocket if you paid for the capital from your own pocket.
If you got a loan instead, then the payments for the loan come off that before you figure your profit in a cash sense, but for tax purposes the loan payment would be irrelevant, you'd use a depreciation number instead, which could be more or less than the loan payment.
If you do not have a positive contribution margin, then it is to your advantage to depreciate over as long a time as possible, in case some day you do make money, then you could offset some of that for tax purposes. If your contribution margin is positive, then you depreciate over less time to get more benefit from the capital expense up front. Here is where it gets complicated in corporate accounting because there is room for interpretation in much of this (or creative accounting, as I call it). Big corporations have tax lawyers on staff to optimize this and not violate any laws (too flagrantly).
If you are making enough money to be a tax issue, you should consult an accountant with small business tax expertise. They can help you get it right and save you a lot of money in taxes. If you are like most of us, and not getting enough revenue to cover our expenses, then the IRS considers your "business" to be a hobby and will disallow any deductions related to it, but you also don't have to file any paperwork or pay any taxes on your revenue. If you are making just a small amount of money, figure out how many years you need to depreciate your initial infrastructure to negate the profit. If it falls into a reasonable time period (3 to 10 years maybe), I wouldn't worry about it, just keep all the receipts in case the IRS should claim you have a business, because if they do, you can go back and write off all your expenses that are related to your hobby.
Don't forget that any repairs to the infrastructure can be treated as expenses in the current year, or added to the cost and depreciated, whichever works best for you tax-wise. Improvements or additions are generally added to the capital costs, but you might be able to make the case to expenses them.