Q:

Subject: May I ask you a quick tax question about section 179?

 

Please advise me on your thoughts regarding the purchase of a new business telephone system and being able to utilize section 179 for a tax break on this purchase.  We are debating at our company on whether you can write off some of the purchase expenses or not…I thought I would ask an expert.

Thanks,

A:

While buying a new phone system would possibly be eligible for Section 179 expensing, whether you can or cannot actually claim it depends on various other factors. 

These include:

The total cost of new equipment placed into service during the tax year; i.e. $420,000 for 2005

Whether there is a net profit for the year, because Section 179 can’t create or add to a net loss. 

You really need to be working with a tax pro who can analyze your figures and give you advice based on your actual numbers.

Good luck. 

Kerry Kerstetter

 

Q:

Subject: Exchange Question

 

Dear Sir,

 

Can I exchange my business in England for a similar business in California? As I am taxed on my worldwide income I should also have all the benefits which are available to all US residents.I am a US citizen

A:

Using 1031 like kind exchange rules for business sales is extremely complicated and is something that you will need to consult with a tax pro on.

This is due to the fact that when a business is sold, the price needs to be allocated between the different components involved, such as equipment, real estate, inventory, goodwill and covenant not to compete.  With each of those items, you will need to determine whether it is even eligible for a 1031 exchange, and if so, what constitutes eligible like kind replacement property. 

One thing that is in the tax code that may mess up your plans has to do with real estate.  United States real estate must be replaced with United States real estate.  Likewise, British real estate would need to be replaced with British real estate.  California real estate is not like kind for British real estate.

You didn’t specify exactly how the sale will be structured.  The above refers to the sale of business assets.  Another complication could cause problems for you if you are selling a corporation by selling off its stock.  This would automatically make it ineligible for a 1031 exchange.

There are plenty of ways to minimize your tax bite.  However, the only way to do so effectively is by working with a tax pro.

Good luck.

Kerry Kerstetter