Tax Guru – Ker$tetter Letter

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Calculating Sec. 179 Tax Savings

Posted by taxguru on January 14, 2009

Q:

Subject: Section 179 Suggestion

Hello Kerry,

I came across your site here today trying to make heads or tails of my deductions for a store I just opened. I found your explanation to be quite clear and easy to understand over the IRS one. I didn’t completely understand the cut off for vehicles. Thank you.

I also have a suggestion. I think it would be great if you added a calculator for section 179. I found a good one that helped me as well here. I think it might help others as well to get an estimate on what their deduction will be. I hope this was of help.

Have a nice day,

A:

I’m glad you found my info on Section 179 to be informative. It is meant to just be a starting point. Any actual calculations should be handled by your own professional tax advisor who can factor in the other criteria that will determine the actual expected tax savings. No online calculator can do a decent job of that kind of analysis.

For example, the one that you referred to is dangerously simplistic and incomplete in the information it works with and is really nothing more than a sales tool to make it appear that equipment costs less than it actually does. When I entered the figure of $100,000 in the Cost of Equipment box, it automatically assumed a tax savings of $35,000 for a net cost of $65,000. It didn’t take into consideration some critical factors that could seriously limit the actual Section 179 deduction, such as how much other equipment was acquired during the year and the level of Taxable Income before any Sec. 179 deduction.

I don’t mean to be harsh here, but one of the biggest mistakes I see constantly is people believing they can function in business without the assistance of an experienced professional tax advisor. While you may think this quick and easy calculator is helping you, it is almost certainly giving you the wrong information unless you are making huge profits and are in the 35% Federal tax bracket. Again, not to be cruel, but anyone making that kind of money is insane and financially irresponsible to try to navigate the tax waters on their own.

I’m sorry to dump on you here, but you pushed a button that needed expressing.

Good luck.

Kerry Kerstetter

TaxCoach Software: Finally! Plain-English Tax Planing That Builds Your Business!

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