Q:

Subject: Section 179 expense

Dear Sir:

I have dealership costs associated with a Coastal Vacations Level I, Level II and Level III that exceed $18,000.  First, could these possibly qualify as a Section 179 expense for 2005.   These are deeply discounted Lifetime Vacation Memberships that must be purchased in order to sell dealerships at Level III.   Or, does that just refer to things like computer equipment and vehicles used by a sole proprietership.

This business had no receipts, so is it possible to take a Section 179 expense of any kind, or must I have had receipts to cover the amount I would like to expense.  Would I only be able to deduct this expense once I had income from this business?

Your response would be greatly appreciated.

A:

As you can see on the page describing the Section 179 qualifications, it is only used for tangible business assets. There is no way in which memberships in a travel club or multi-level program would qualify for such classification. 

Those costs would need to be amortized over their useful or class lives, which a qualified professional tax advisor can help you determine.  And that would only be possible if you are able to prove that they are being used for potentially income generating business purposes and not for your own personal pleasure.  I’m not personally familiar with this MLM; but many similar travel club programs routinely give the absolutely false advice that their costs are fully deductible.  People are frequently getting into trouble with IRS for trying to deduct these kinds of personal travel costs because they do not have a true for-profit business set up.

If you are serious about running your multi-level business as a legitimate for-profit enterprise (the only way in which you can deduct any related expenses), you need to be working directly with a professional tax practitioner.  To not do so will severely jeopardize your ability to convince IRS that you have the required profit motive and aren’t just doing the travel club thing for your personal enjoyment.

Your personal professional tax advisor will be able to assist you in determining what kinds of things are deductible, both with and without any income generated from that business.

Good luck.

Kerry Kerstetter