Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

  • Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Join 669 other followers

  • Blog Stats

    • 289,189 hits
  • Posts By Day

    July 2007
    M T W T F S S
     1
    2345678
    9101112131415
    16171819202122
    23242526272829
    3031  
  • Subscribe

  • Special Pages

Archive for July 19th, 2007

Posted by taxguru on July 19, 2007

You have to be really desperate for cash to scrounge through your dog’s droppings looking for some that made it all the way through.  These people in Wisconsin were that desperate.  Their dog ate almost $750 and the owners recovered about $400.

Family Searches Feces of Cash-Eating Dog

 

Posted in Uncategorized | Comments Off on

Section 179 For Recording Equipment?

Posted by taxguru on July 19, 2007

Q:

Subject: Sect 179 Question

Kerry,

 

I found your website while Googling the topic of Sect 179 first-year deductions.  I would like to ask your opinion about a specific piece of electronic equipment and it’s eligibility for first year deduction as opposed to depreciation.

 

I am a self-employed Human Resource Training & Development Consultant.  My business is an LLC and I report income via K-1.  I have recently purchased a 16-track (portable) digital recording studio, along with several peripherials (external CD-R / headphones / condensor microphone / mic stand / mic cable), all totaling about $800.  The intent of this purchase is to be able to record some of my training session content to CD for the purpose of what trainers often call “back of the room” sales – CD’s available for sale on-site to participants in my training sessions, or perhaps available for purchase through my website.

 

Under this scenario, I believe all of these items are deductable under the provisions of Sect 179 for first-year full cost deduction.  I would like to know if you concur?

 

Thanks in advance for any reply you may be kind enough to offer.

Thanks and have a GREAT day!

 
More Info Requested:

I need more info on your situation in order to answer your question.

You said the business uses K-1s.  Is it a 1065 or 1120S?

How many owners of your business?

Did you buy the equipment through the business or personally?

What has your personal professional tax advisor said about this?

Kerry Kerstetter

 
More Details:

Sorry for not being more specific, Kerry.  The busniess is owned by my wife and I with no additional partners.  We do report income using 1065’s.  The equipment was purchased with business funds directly – not personal funds with reimbursement through business funds.  My wife is also our accountant (she has an accounting degree but is not a CPA).  She is very knowledgable about busniess tax issues but is a bit hesitant to fully expense these items for the 2007 tax year as opposed to depreciating them over some reasonable life span.  I believe they qualify for full cost purchase year deduction.  Thanks again for your reply.

Thanks and have a GREAT day!

A:

Thanks for the additional info.  I was worried that you may have been trying to use a 1065 for a single member LLC, which is not legal to do.  It’s fine with a multi-member LLC.

I don’t see any reason why the equipment wouldn’t qualify for the Section 179 expensing election.  However, whether you can actually claim any deduction is a different issue. I forgot to ask whether the LLC is profitable or not, but that factor will decide whether any 179 will be allowable for the year.  As you can see on my web page explaining the Section 179 deduction, there has to be enough net income from the business before that expense in order to be able to claim it.  In other words, the Section 179 deduction cannot add to or create a net loss.  If this income limitation will disallow the Section 179, you may very well be better off just claiming the normal depreciation expense, which can add to or create a net loss.

This is the kind of thing that you should have consulted with a professional tax advisor prior to the purchase rather than after.  If you had purchased the equipment in your individual name instead of the LLC’s, there is a much greater possibility that you would be entitled to a larger net Section 179 deduction because the taxable income test at that level will include other sources of earned income, such as W-2s and other Schedule C income.

I mean no offense to your wife, but even with her accounting knowledge, you need to have a working relationship with a professional tax advisor who can fill in the gaps.  Over the years, I have had several clients who were CPAs and professional accountants who paid me to give advice, review their work and even to prepare their tax returns because they were aware of their own limitations.  A similar relationship would be helpful for you and your wife to establish with a professional tax advisor, who could very easily have gone over the pros and cons of buying the new equipment in your personal name versus the LLC’s name.  Similar issues will definitely be popping up all the time, so the sooner you start working with a tax pro, the better prepared you will be.

Good luck.  I hope this helps.

Kerry Kerstetter

Follow-Up:

Thanks again for your replies.  All good advice and very understandable. 

Thanks and have a GREAT day!

 

 

 

 

Posted in Uncategorized | Comments Off on Section 179 For Recording Equipment?

Buying A Large Vehicle

Posted by taxguru on July 19, 2007

Q-1:

Subject: More 179 Questions

Hi,

 

I see that you regularly advise people to ask your “tax professional”.  Mine doesn’t seem to be able to give me an answer that gives me a “warm and fuzzy feeling” that he knows what he’s taking about on this subject. Where can I find specific IRS info on which SUVs are on the list of  s179 approved vehicles?  What section of the IRS code  addresses whether on not the SUV must be new or can be used? And, most importantly, does the vehicle have to be registered to his company in order to be uses as a small business writeoff or can it be registered in his name as President of the company and be used for the writeoff? 

 

My husband refuses to make a purchase until be can get a verifiable answer and I want my new Escalade.

 

Thanks in advance for any advice. 

 

PS.  Can you recommend a Financial Planner/Tax Advisor in the eastern Long Island area of New York.

 
A-1:

IRS doesn’t certify vehicles for Section 179.  The definition of luxury vehicles that are severely restricted in their depreciation and Section 179 deductions was defined in 1984 to only include vehicles of less than 6,000 pounds gross vehicle weight.  Check the stats on the vehicle you are considering purchasing to see if that particular model is heavy enough. 

I had put together some links to some lists of the most popular vehicles weighing more than 6,000 pounds; but many of those links have gone out of service.

Assets qualifying for Section 179 do not have to be brand new; just new to you.  This is all explained on my website.

If you are unincorporated, the actual title on the vehicle isn’t as important as the number of business miles driven compared to the total miles for the year.

You definitely need to be working with a good tax advisor.  As I mention in my tips on selecting one, basing that decision simply on geographic concerns is the wrong way to make that choice.

I do have some names of other tax pros, including one in Brooklyn, on my website.

I hope this helps.  Good luck.

Kerry Kerstetter

 
 Q-2:

Hi Kerry,

 

Thanks for your reply. 

 

 We have a Sub S Corporation.  What are the title ramifications of that?  From what I can gather the vehicle has to be between 6,000 and 14,000 lbs. GVW  I plan to buy an Escalade which is surely on the list as it is well above 6000 lbs. GVW  We plan to register it in my husbands name as he is 100% Owner of the corporation and hopefully we will be able to take the Small Business Luxury Vehicle writeoff of $25,000 + $5,000 the first year.  Comment? 

 

 A-2:

This is a perfect example of why it is so important to be working with a tax pro because there are a number of different ways in which to handle a large vehicle purchase. 

I’m assuming that it will be used at least 50% for business or else no Section 179 would even be possible.

Following are just a few of the variations that need to be reviewed with your own personal professional tax advisor.

If the vehicle’s title is in your and/or your husband’s personal name, there is a high likelihood that the actual net tax savings from the Section 179 and depreciation deductions won’t be as much as with corporate ownership because you would have to show them on Schedule A as Unreimbursed Employee Business Expenses.  For several reasons, Schedule A deductions are not as powerful as are deductions that reduce AGI on the front of the 1040.

If the corp owns the vehicle, the Section 179 will pass through to your Schedule E via the S corp’s K-1 and will reduce your AGI, resulting in a larger net tax savings than on Sch. A.

One additional twist to the corp ownership scenario is how you account for non-business personal usage of the vehicle.  You need to work with your personal professional tax advisor to set up a policy to either reimburse the corp for that usage or include its value as additional W-2 income.

Also, you may be confused on the weight issue of vehicles qualifying for the large Section 179 deduction,.  Those weighing between 6,000 and 14,000 pounds are eligible for up to $25,000 of Section 179.  Those weighing more than 14,000 pounds are eligible for as much as the full $125,000 annual overall limit.

Good luck.  I hope this helps.

Kerry Kerstetter

 

 

 

 

 

Posted in Uncategorized | Comments Off on Buying A Large Vehicle