California-based “corporation sole” and “claim of right” programs halted – Another scammer out of business. The Feds are racking up a good number of scalps.

Buried treasure dug up – This woman’s investment plan actually beat many stock market investors. She put $50,000 into a hole in her backyard in 2001 and got back $50,000 three years later.

Fair Share & More. The rich are doing their tax-paying part — and then some

Bush Has Until November 2 to Sign ETI Repeal Bill – But he could sign this into law as early as tomorrow, which means the new Section 179 limit for vehicles weighing less than 14,000 pounds will kick in.

I received this follow-up to my earlier message on Section 179 deductions:

Thank you very much for your reply. There are some accountants out there that think section 179 expires December 31, 2004. Was there any truth to this?

Thanks again.

My reply:

There was never any chance that the entire Section 179 was going to be eliminated.

Before this new law, the schedule was for the maximum Section 179 deduction for 2005 to be $102,000 + a COLA for inflation. It was then scheduled to drop to $25,000 in 2006.

I’m not sure how the rumor that Section 179 was ending on 12/31/04 got started, but I have heard it a lot; not just from you.

You can see more on this on my website:

http://taxguru.org/incometax/Rates/Sec179.htm

Kerry Kerstetter

New Issue of Tax Watch Now Online From Tax Foundation – You can download this interesting eight page newsletter here as a PDF file

More states explore tax breaks to benefit organ donors

Teresa’s Taxes, Continued. The super-rich really are different.

Tax Relief Awaits Owners Of Commercial Property – There has been too much focus on the negative aspects of the soon to be signed tax law (limiting vehicle Sec. 179 to $25,000). There are some good things in it, such as this change in the depreciation life of leasehold improvements from 39 years to a much more reasonable 15.

And the Budget Says . . . the supply-siders were right all along. – Larry Kudlow.

The tax man and the debt collector team up

THE HEINZ KERRY TAX MYSTERY

As with all tax changes, the misconceptions are flying around, as with this question I recently received.

Question: Could you let me know when will section 179 decrease from the current $100k deduction?

My Reply:

The overall Section 179 deduction is not going to be reduced at all from its current level of $102,000 per year.

What is going to change is how much of that $102,000 that can be used for vehicles weighing between 6,000 and 14,000 pounds. As soon as President Bush signs the law, it will create a limit of $25,000 per year of the Section 179 that can be used for those vehicles. The new limit will take effect as of the date of signing.

The other $77,000 can still be used for any other kinds of qualifying business equipment, including vehicles weighing more than 14,000 pounds.

I haven’t yet seen an announcement of the exact day Pres. Bush will be signing this into law; but I’m guessing it will be very soon.

I hope this clears things up for you.

Kerry Kerstetter

This is from early August (I said I was far behind in my postings).

Q:

I am starting a home business selling Herbalife nutritional supplements. I am a sole proprietor , but they send me a 1099 at the end of the year. Can I purchase a used minivan and a laptop for my business and then claim the whole amount on my taxes using the form 4562 section 179?

Can my name and my husband’s name be on the title of the minivan, if he is not a partner on the retail merchant certificate ? Or does the title have to have the Doing Business name on it?

This is all new to me. I hope to hear from you soon. Thanks again

A:

How the assets are titled doesn’t matter for tax deduction purposes. What matters is how they are used. You can deduct the cost of business equipment based on its percentage used for your business. For computers, it’s based on time used. For vehicles, it’s based on miles driven.

If the van weighs more than 6,000 pounds and is used more than 50% for business, it is eligible for the Section 179 immediate expensing election for the business portion. If it weighs less than 6,000 pounds, you have to depreciate it over five years.

You really should be using the services of a tax pro to make sure you do everything properly. Most tax pros who understand small business will save you many times more in taxes than their fee.

Good luck.

Kerry Kerstetter

It looks like the new law restricting the Section 179 deduction for vehicles weighing less than 14,000 pounds will be signed into reality this week.

Just a reminder that one way to double the allowable amount is still by using a C corporation.

From early September:



Q:

I have a sno cone trailer and equipment (about $10K in capital) that has been down two years out of three I have been depreciating (because the truck I was using died on me). This is a seasonal business, about 6 months of year (I do events in Texas).

Now I see this Section 179 thing and am wondering if I can buy a truck at end of year (2004) and take the deduction in 2004 for the entire thing ($30K). I will be able to get the business going again in March 2005.

A:

The Section 179 expensing election has been around for several years; but it’s just recently been increased to the current level of $100,000+ per year.

One key requirement that has always been part of Section 179 is that the asset must actually be placed into service during the year for which you are claiming the deduction. In other words, you can’t buy the new truck and claim any depreciation or Sec. 179 on your 2004 tax return if you don’t actually start using it in your business until 2005.

What you may want to consider doing is reactivating your business before the end of this December and use the new truck to run business related errands, such as buying supplies.

I hope this helps. You should obviously consult with your own personal tax advisor for the best customized strategies for your case.

Kerry Kerstetter

Q:

Dear Guru,

We had a good year in the business, and with no other equally plain and speedy remedy, have utilized the section 179 business equipment section to shed some excess income. We have purchased a good, but big, vehicle for business use. It burns a bunch of gasoline, and though it is a perfectly good vehicle in all other respects (Lexus), it is not at all fuel efficient. How long do we have to keep this vehicle? Does the IRS care?

A:

If you have a profitable business, you really should have a personal tax pro who can advise you.

In regard to disposing of your gas guzzler, the issue isn’t how long you own it. If you deducted its full cost under Section 179, it now has an adjusted cost basis (aka book value) of zero. Whatever you sell it for, at any time, anything you receive for it will be taxed as ordinary income as depreciation recapture.

There is a way around this. If you trade the vehicle in on a new one valued at least as much as this one is worth, and don’t receive any money back, you can roll the gain over into the new replacement vehicle. This would be a Section 1031 tax deferred like kind exchange, reported on Form 8824.

Good luck.

Kerry Kerstetter

Q:

I heard that the section 179 maximum was being lowered right now by vote in Congress. Is that true and if so, how much?

Thanks,

A:

The overall limit of $102,000 for the Section 179 deduction isn’t being changed.

What is looking like a possible change is the amount of that $102,000 that can be used for vehicles weighing between 6,000 and 14,000 pounds. That would be capped at $25,000 per year if this current bill makes it into law.

The remaining $77,000 would be available for other kinds of business equipment, including vehicles weighing more than 14,000 pounds.

Stay tuned to TaxGuru.net for the latest on this topic.

Kerry Kerstetter

I’m cleaning out my “To-Post” box of questions regarding the Section 179 expensing election, since the proposed change in the amount allowable for vehicles has attracted so much attention in the past week.

From a reader:

I am a partner in a LLC – does the automobile need to be titled in the LLC’s name or in my name. Thanks

My reply:

It depends on where you want to claim the Section 179 deduction.

If you are claiming it on the 1065 for the LLC, where it will be divided among all of the members via their K-1s, the vehicle needs to be in the LLC’s name.

If you own it personally and use it for LLC work, you can claim it on your 1040 based on the percentage of miles driven for that business. This will give the full deduction to you and it won’t be shared with the other LLC members.

I hope this helps. Your personal tax advisor can be more specific for your situation.

Kerry Kerstetter