Tax Guru – Ker$tetter Letter

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Archive for July 15th, 2008

Section 179 for software?

Posted by taxguru on July 15, 2008

Q:

Hello Kerry,

I work for an accounting software company and I have a question for you regarding Section 179. Our software is not “off the shelf” as we have resellers that customers purchase from. I am no accountant so please be kind and speak in laymen’s terms.

We have customers that initially purchased the software, but did not stay on a plan. They now want to come back on a plan and get all the software that they missed which has new functionality to benefit their business. Some need to update their computer hardware, server, printers, etc. for compatibility issues, and/or add additional user licenses and modules. If they decide to do this, does the software and/or plan fall under Section 179?

Thank you for your assistance.

A:

I hope you’re not planning to give tax advice to your customers, because that is extremely dangerous for both you and for them. Sales people giving out tax advice is one of the pet peeves we in the tax profession have long had to deal with; often with bad results if that advice was heeded by a customer without verification with their own professional tax advisors.

The costs for your software, plan and the related hardware should be potentially deductible as either Section 179 or as normal operating expenses, based on the costs involved and the useful life of the software.

If deductibility is a deal breaker for your customers, they should each check with their own professional tax advisors to see how much they will be able to deduct in the first year. There are limits based on taxable income and the total cost of new property purchased during the year; so there is absolutely no way you can be in a position to know what Section 179 deductions they may be able to claim.

Good luck. I hope this helps.

Kerry Kerstetter

Follow-Up:

Hello Kerry,

I would personally never give out information in a territory I am unfamiliar with. Our Managers here have advised us already not to give out tax advice. This Economic Stimulus is not being used as a “deal breaker” by any means. We have a PDF on the Economic Stimulus (I attached it), but I wanted to find out if this is something worth while for the customer or if I should not even mention it at all. It seems like it is a case-by-case instance and there is no real black or white about it. For now, I’ll just have them view the PDF and contact their CPA.

Thank you for your assistance.


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Posted by taxguru on July 15, 2008

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