Some conservatives are unhappy with the president. Will they stay home in November? – Rather than sitting out the November 2004 election, Bush will get a stronger message of how disappointed people are in his support of bigger more expensive government if they vote for a candidate who believes in the limits on government as enumerated in the US Constitution, such as a Libertarian.

The GOP’s new drug benefit is a serious policy error.

Stop GOP ‘spending’ spree

My goal is good policy – Obviously, I strongly disagree with Mr. Bartlett’s characterization of the Libertarian Party as worthless.

U.S. Vehicle Sales Rev Higher in November – It’s funny that there’s no mention of the tax related motivators for people to buy new vehicles: Governor Arnold’s repeal of the tripled car tax in the PRC and the quadrupling of the Section 179 expensing allowance for heavy (over 6,000 pounds) vehicles.

Smart Tax Laws Would Put More Money in California’s Pocket – The L.A. Slimes hasn’t slowed down in its attacks on Arnold. This argument that people are better off with the higher property taxes on their vehicles, because they could deduct them on their income tax returns, is complete idiocy. This is the same widely held fallacy that tax deductions are equivalent to a full reimbursement. They want their readers to believe that taxpayers are better off paying $1,000 in higher property taxes so they can claim them on their Schedule A. The fact that the actual income tax savings would be only about $270, resulting in a net cost to the taxpayer of $730 is something the Slimes hopes people are too stupid to notice. In fact, anyone who thinks big tax deductions are a good thing can send me a check for a fully tax deductible $1,000 for tax advisory services and I will provide you with an IRS acceptable receipt. And for anyone who believes the L.A. Times that this is good deal, think of how much better your tax deductions would be if you were to send me a check for $10,000. You would save ten times as much in taxes. Be sure to get those checks in the mail before December 31 so that you can claim them on your 2003 tax returns. This offer is not limited to residents of the PRC. It makes just as much sense for anyone in the USA.

I received the following question earlier today, giving me a good opportunity to address one more misconception about how to properly utilize the Section 179 deduction.

I got your email off your tax website and have a question about the 179 deduction I can’t seem to find the answer to.

How do I claim the section 179 deduction on property that I have borrowed to buy? Can I use the section 179 form each year to write off only the amount I have paid back on the loan that year or do I have to write off the full amount in the year I put the property into use? And if I write off the full amount in a single year, how do I handle the subsequent years when making payments on the property?

My Response:

As I have contended for decades, most people routinely overpay their taxes because of poor bookkeeping. This specific issue is an area where I frequently see people short changing themselves out of very legitimate deductions. In fact, just a few days ago, I was working on a tax return where the client had booked $5,000 as a down payment on a backhoe and was under the impression that was all that could be claimed for that year. I informed her that we need to set up the full cost of the asset, including the loan for the additional portion of the purchase price, and we can deduct Section 179 based on the full cost.

The Section 179 deduction, as with normal depreciation, is based on the full cost of the asset. How you finance it makes no difference to IRS. It is treated the same whether you pay cash for the full amount or if you put zero money down and take on a loan for the full cost. In fact, for decades, I have been advising people that you can literally go out at the end of December, use your credit card to buy $20,000 of computer and business equipment, take it back to your office and set it up. You can then deduct the full cost on your 2003 tax return, even though you won’t even receive the bill until 2004 and may even take several years to pay it completely off.

The bookkeeping entry is very basic. When you buy the asset, you will debit the fixed asset account for the item’s full cost and credit your bank account for any down payment and credit the loan or credit card for the financed portion.

Payments on the loan are also booked conventionally. The loan balance is debited for the principal portion of the payment and interest expense is debited for the interest portion of the payment. Payments on the loan have no effect on the cost basis (and depreciation – Sec. 179 expense) for that asset.

I hope this helps you understand the concept & procedures.