Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for June, 2004

Section 179 & Leases

Posted by taxguru on June 30, 2004

For some reason, the topic on which I receive the most inquiries is the Section 179 expensing election, especially in regard to vehicles weighing more than 6,000 pounds, which are most often trucks, vans and large SUVs. Most of the time, I just refer the writer to my discussion of this topic on my main website.

However, when a new angle or aspect which I haven’t previously covered comes up, I do my best to share that info here.

Yesterday, I received an email asking if the writer had to purchase a truck in order to claim the Section 179 or could he lease it? I wrote back that he does have to buy it; but that how he pays for it (cash or loan) is irrelevant.

He later wrote back: “So, if I intend on purchasing the vehicle at least term for the residual value as stated in the contract, whether or not my contract is called a lease, I have a conditional sale. And that would qualify?”

I informed him that he was wrong with that reasoning. The Section 179 deduction is only allowed in the first year the asset is purchased and placed into service. Possibly buying it several years from now is not even close to being eligible.

I could understand someone possibly wanting to claim the deduction in the year of the buy-out, but at the beginning of the lease is ridiculous. A possible purchase at the end of the lease is not certain enough of an event to warrant even taking seriously, regardless of the lessee’s intention now. Who knows what will really happen at the end of the lease?

While this question addressed a normal operating lease, where the ultimate purchase price is a relatively large amount (normally thousands of dollars), my answer would have been different if it had been a capital lease. Capital leases are what we accountants call “disguised purchases” because they are often used to keep liabilities off of a company’s balance sheet (Enron, et al). At the end of the lease, the asset typically becomes the property of the lessee, often for a nominal amount (such as a one dollar buy-out). With that type of lease, which is actually a purchase in economic reality, the Section 179 deduction could be claimed in the first year just like with a normal purchase.

Posted in 179 | Comments Off on Section 179 & Leases

Posted by taxguru on June 30, 2004

Thanks to Andrew Roth at The Club For Growth for these news updates:

Republican Tax-Hikers Lose In Oregon

It’s Not a Choice of Health Care or Tax Cuts – It’s Bigger Government vs. Greater Freedom

Cigarette Tax Increase Should Go Up in Smoke – Unfortunately, exploiting nicotine addicts is itself an addiction our rulers can’t kick.

Social Security Reality. A call for reform.

Posted in Uncategorized | Comments Off on

IRS Guidance On Charitable Donations

Posted by taxguru on June 30, 2004

Interesting news from the IRS Press Room

Treasury and IRS Issue Notice Regarding Improper Deductions for Conservation Easement Donations – I haven’t personally encountered any of these issues; but I have heard of these kinds of overly creative games being played with values of easements donated to charities.

New Publications Focus on Car Donations – This is more guidance for both charities and donors on an issue I have encountered and discussed on several occasions. As I’ve always said, people claiming charitable deductions for their beat-up vehicles based on inflated Kelly Blue Book prices are wrong. Fair market value is what an unrelated buyer would actually pay for the vehicle, and not some theoretical book value based on a condition very different from reality.

Posted in Uncategorized | Comments Off on IRS Guidance On Charitable Donations

Posted by taxguru on June 29, 2004

It’s funny how private enterprise can solve most problems faster and for far less money than government can. So, why are the only solutions proposed by our rulers for every problem more money (and higher taxes) for bigger incompetent government programs?

Posted in Uncategorized | Comments Off on

Posted by taxguru on June 29, 2004

Far too many of our rulers believe that all money belongs to them and we should bow down and kiss their feet as thanks for their allowing us to keep any of it.

Posted in Uncategorized | Comments Off on

Posted by taxguru on June 29, 2004

Gov. Jim McGreevey is forcing New Jersey taxpayers to swallow a $6.4 billion pill of new taxes and fees – The wrong kinds of things are growing in the Garden State.

Posted in Uncategorized | Comments Off on

Tax On Stupidity

Posted by taxguru on June 29, 2004

Whole Lotto Stealing Going On – Amazingly, people still fall for this ages old scam and send in money to claim their supposed prizes.

Texas State Lottery Jackpot Now at “Infinity Plus One” – The higher the jackpot, the more people want to play, when their odds actually decrease.

Posted in Uncategorized | Comments Off on Tax On Stupidity

Butt of Jokes

Posted by taxguru on June 29, 2004

The corporate accounting scandals have raised our profession up in terms of public profile and as a target for ridicule. I doubt, however, if we will ever catch up with the number of lawyer jokes floating around. They have too much of a head start.

Posted in Uncategorized | Comments Off on Butt of Jokes

Posted by taxguru on June 28, 2004

Economic issue squeeze – The media, in their effort to only report bad news about Bush, don’t want us to hear another example of Reaganomics working in real life:

“Just for the record about the tax cuts’ long-term impact, budget officials now forecast the deficit will be about $100 billion less than expected this year because of rising federal tax revenues from a growing economy.”

They would prefer to continue harping about how destructive tax cuts for the evil rich are and completely ignore how they stimulate economic growth for everyone.

Posted in Uncategorized | Comments Off on

How our rulers address the Social Security problem:

Posted by taxguru on June 28, 2004

Posted in Uncategorized | Comments Off on How our rulers address the Social Security problem: