Q:

Thank you for your helpful website.
Can you please clarify what qualifies as an “in service” date for Section 179 election and the Bonus Depreciation for 2004?
If software and hardware are delivered to a taxpayer but not installed prior to 1-1-2005, can the taxpayer still take the election for 2004?
Does the existence of a sales order qualify?
Thanks for your help

A:

Placed in service means actually being used before the end of the tax year.  Just having it on hand or on order is not good enough.

From a practical perspective, you do have to wonder how such things can be verified two or three years after the fact

For software, you should be careful to expense the normal recurring purchases, such as the annual QuickBooks or MS Office upgrades in a normal operating expense account.  These don’t need to be capitalized and depreciated or counted against the Section 179 election.

Big customized software or programs expected to be in service for several years do need to be capitalized and depreciated or claimed under Sec. 179.

Your personal tax advisor should be assisting you with this.

Good luck.

Kerry Kerstetter

Q:

If I buy a $25k SUV on december 30th, can I write it off completely?  Or is it prorated based on the calendar year?

A:

The Section 179 deduction has never been pro-rated for normal calendar year taxpayers on their 1040.  The only time I have encountered the need to pro-rate the maximum Sec. 179 deduction is for the first year of a corporation that is less than twelve months long.

In your situation, it is crucial not only to buy the SUV before midnight on 12/31/04; but also to use it for at least 50% for your business by then.  Depending on the cost of the SUV, and its business percentage usage, you could claim as much as $25,000 in Section 179 for it on your 2004 1040.

In addition, if it’s a brand new vehicle, you could also claim the 50% bonus depreciation on the remaining business portion of the cost, after reducing it for the Sec. 179.

Good luck.  I hope this helps.   

Kerry Kerstetter

Q:

I am self employed, I am not incorporated.  Can I still use 179?
 
I do have a business name and am registered with the city.
 
Do I have to get commercial plates or register the truck in my name?

A:

You can claim it on your Schedule C.

The vehicle doesn’t have to be in the business’s name.  It can be in your personal name.  All IRS cares about is how it was used, business vs. personal.

You really do need to work with a tax pro to keep you on the right path.  Unfortunately, I am so far behind with work for existing clients that I can’t accept any new ones at this time.

Good luck.

Kerry Kerstetter