Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for January 5th, 2004

Financing of asset has no effect on Section 179 deduction

Posted by taxguru on January 5, 2004

Heeding the adage that, for every person who asks a question, there are many more out there who want to know the same thing, I share the following.


I have a question concerning IRS form 179, vehicle deduction.

I have a new SUV that I purchased in ’03 and use in my real estate business. I currently owe $40K. I will have funds in first quarter ’04 to pay off the loan. My question is will I still be able to deduct the vehicle with a “zero” balance owed in ’04 tax year therefore eliminating a monthly payment of $600 or should I maintain the payment for the deduction in ’04 tax year and beyond?

My response:

How much you owe on the SUV, either originally or later on, is completely irrelevant to the depreciation and Section 179 deductions on Form 4562. As I’ve said on a number of occasions, the 4562 deductions are exactly the same whether you pay cash for a new business asset or if you finance the entire purchase price.

The only difference you would have if you pay off the loan is no more deduction for the business portion of the interest you pay each year.

No offense, but these are very basic issues that your personal tax advisor should know about. It sounds like you should be looking for a new advisor if you want to keep your taxes as low as legally possible.

Good luck.

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Take Your Time

Posted by taxguru on January 5, 2004

It’s only January 5th and I’ve already seen people panicking about getting their W-2s and 1099s prepared for last year. What’s the big hurry? As I have seen all too often, mistakes are made on these forms when they are rushed without ensuring the accuracy of the figures. The forms aren’t required to be given to the payees until February 2 (January 31 is a Saturday). A little known secret is that there is no actual penalty for payers missing this deadline. The real deadline, with minor potential penalties, is March 1 (Feb 29 is a Sunday), when the 1099 and W-2 forms need to be mailed in to IRS and SSA.

As I’ve said on many occasions, it’s always wiser to take your time and make sure your tax forms are as accurate as possible than to rush something in that may or may not be able to be corrected. With erroneous W-2 and 1099 forms, what happens is that IRS and SSA will end up with two sets (the original and the corrected one) and will expect the combined amounts to be reported on the payees’ 1040s.

One other reminder — payments to corporations are not required to be reported to IRS on 1099s or any forms.

For tax pros who are preparing 1099s and W-2s for clients who don’t have them set up on QuickBooks, I can’t speak highly enough about the stand alone program from CFS Tax Software. This will be something like the 20th year I have used it.

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Some people do find potentially dangerous places to demonstrate their creativity.

Posted by taxguru on January 5, 2004

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Posted by taxguru on January 5, 2004

Despite Rebound, States’ Budgets Are Still Reeling

Governor’s Budget Bill Comes Due

Tax puzzle pressure points – As always, every attempt to simplify the tax system just ends up making it even more complicated, ensuring us tax professionals a lifetime of never ending work.

Cash-Strapped States Face New Challenges

Dream Homes Come With Rural Wake-Up Call – Living in the boonies does take some getting used to and is obviously not for everyone. However, after almost eleven years living here in the Ozarks with the closest neighbors about a mile away, we could never go back to the other kind of life like we had in the Bay Area. It’s very nice here, where population density is measured in numbers of acres per human resident instead of dozens or hundreds of people per acre.

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