Section 179

[Frank]

Can anyone clarify the conditions associated with the
possible Section 179 tax savings associated with the
purchase of an SUV over 6,000 LBS. GVWR? I am a full-time
employee using the vehicle for sales meetings (income
reported on a W2) and have side income reported on a 1099.

Do I qualify? What is the benefit? Is the benefit in 2003,
2004, or 2005? I'm considering the purchase of a laptop
computer as well (estimated cost of $1,000). I assume the
same benefit applies as well?

 

[Michael S. Rosen]

Can anyone clarify the conditions associated with the
possible Section 179 tax savings associated with the
purchase of an SUV over 6,000 LBS. GVWR? I am a full-time
employee using the vehicle for sales meetings (income
reported on a W2) and have side income reported on a 1099.

Do I qualify? What is the benefit? Is the benefit in 2003,
2004, or 2005? I'm considering the purchase of a laptop
computer as well (estimated cost of $1,000). I assume the
same benefit applies as well?

Would you use the vehicle for personal use as well? If so,
you would need to prorate the business use. But otherwise
you could take the entire cost as a deduction to the extent
that you have positive net income. You still can't take
Section 179 when it causes you to have a loss.

The deduction goes up from $24,000 in 2002 to $100,000 in
years 2003-2005.

Mike

 

[Mike Lewis]

Can anyone clarify the conditions associated with the
possible Section 179 tax savings associated with the
purchase of an SUV over 6,000 LBS. GVWR? I am a full-time
employee using the vehicle for sales meetings (income
reported on a W2) and have side income reported on a 1099.

Do I qualify? What is the benefit? Is the benefit in 2003,
2004, or 2005? I'm considering the purchase of a laptop
computer as well (estimated cost of $1,000). I assume the
same benefit applies as well?

If this SUV weighing over 6000 lbs was being bought for your
business, rather than to use as an employee of another
business, it would be deductible in 2003 up to $100,000 in
cost subject to limits imposed based on total qualified
property purchased.during the year and also limited to the
net profit of the business (however, if the limit is due to
not making enough profit, the amount not deducted would
carry forward until sufficient profits were made to fully
deduct the amount.

Your facts seem to indicate the SUV belongs to you
individually and therefore falls under the rules of employee
business expense. Such expenses flow to the Sch A as
itemized deductions and are limited to the % such vehicle is
used for business purposes. If you have shown business
expenses in the past and claimed x% actual costs or xmiles
times the mileage allowance, you may have a chance to
recover part of your purchase price via form 2106/Sch A. I
would highly recommend you seek advise from a local tax
professional.

Mike Lewis, CPA

 

[D. Stussy]

(e-mail address removed) (Frank) wrote:

Would you use the vehicle for personal use as well? If so,
you would need to prorate the business use. But otherwise
you could take the entire cost as a deduction to the extent
that you have positive net income. You still can't take
Section 179 when it causes you to have a loss.

I disagree with the last sentence. One can still TAKE the
179 election, but the amount exceeding business income
(INCLUDING wages NOT reduced by EBE) is forced into a
carryforward. That's NOT the same as not being able to
elect it in the first place (which is how your statement
reads).

 

[Arthur Kamlet]

I disagree with the last sentence. One can still TAKE the
179 election, but the amount exceeding business income
(INCLUDING wages NOT reduced by EBE) is forced into a
carryforward. That's NOT the same as not being able to
elect it in the first place (which is how your statement
reads).

'
But is it wise to take it?

If you plan to make a good profit at this business, then you
should save depreciation expense for its ability to reduce
net schedule C income and thus save not only the income tax
but the self employment tax too.

Taking any more section 179 expense than is needed to reduce
net self employment income down to $400 wastes the ability
to save around 14 - 15% self employment tax in that amount.

And if you don't expect this to be a profitable business,
and it goes belly up before the end of the normal
depreciation period based on its class life, you will have
to recapture the difference as if you converted its use to
personal use.

 

[Michael S. Rosen]

Would you use the vehicle for personal use as well? If so,

I disagree with the last sentence. One can still TAKE the
179 election, but the amount exceeding business income
(INCLUDING wages NOT reduced by EBE) is forced into a
carryforward. That's NOT the same as not being able to
elect it in the first place (which is how your statement
reads).

Well, typically if the client is going to have a loss we
limit the section 179 we're going to take to take advantage
of as much depreciation as we can.

 

[D. Stussy]

But is it wise to take it?

Wisdom and ability, in their purest sense, have nothing to
do with each other! I can agree with a "because one can,
should one?" approach, but that is not what I set out to
address here. He didn't ask, "Should I?" - he asked "Can
I?"

 

[D. Stussy]

Would you use the vehicle for personal use as well? If so,

Well, typically if the client is going to have a loss we
limit the section 179 we're going to take to take advantage
of as much depreciation as we can.

But that's not a matter of "can he?" but of "should he?"
(see my other response on this).