Timing of Sec 179 deduction


0

0b3hks001

For a cash taxpayer, charging to a credit card is considered
paid. What happens to a computer purchase charged to a
credit card when shipped on 12/21/2005 but is not delivered
until Jan, 2006?

I think Sec 179 deduction requires the computer to be in
service by 12/31. If yes, how do I book the other side of
the transaction -- prepaid or fixed asset? And is TurboTax
Business going to handle it properly?

TIA
 
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D

D. Stussy

For a cash taxpayer, charging to a credit card is considered
paid. What happens to a computer purchase charged to a
credit card when shipped on 12/21/2005 but is not delivered
until Jan, 2006?

I think Sec 179 deduction requires the computer to be in
service by 12/31. If yes, how do I book the other side of
the transaction -- prepaid or fixed asset? And is TurboTax
Business going to handle it properly?
Technically, yes, you are correct. However, on the flip
side, how is the IRS going to prove that deliver didn't
happen on or before December 31 and that you didn't have a
chance to set it up on the last day of the year? As long as
it's placed in service immedately upon delivery, I don't
think they're really going to care - as instead of a 179
expensing, you will still get depreciation and thus will
eventually recover it anyway.

I don't see a material issue here.
 
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H

Harlan Lunsford

D. Stussy said:
(e-mail address removed) wrote:
Technically, yes, you are correct. However, on the flip
side, how is the IRS going to prove that deliver didn't
happen on or before December 31 and that you didn't have a
chance to set it up on the last day of the year? As long as
it's placed in service immedately upon delivery, I don't
think they're really going to care - as instead of a 179
expensing, you will still get depreciation and thus will
eventually recover it anyway.

I don't see a material issue here.
I can't believe you said that! About the "how is the IRS
going to prove.... etc."

It's not UP to the IRS to prove anything; proof that an asset
was placed service on any date is incumbent upon the taxpayer.
Period. Date of payment or date of obligation has absolutely
nothing to do with the section 179 deduction.

(shaking his head)

Happy New Chear$,
Harlan Lunsford, EA n LA
 
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Stuart A. Bronstein

Harlan Lunsford said:
D. Stussy wrote:
I can't believe you said that! About the "how is the IRS
going to prove.... etc."

It's not UP to the IRS to prove anything; proof that an asset
was placed service on any date is incumbent upon the taxpayer.
Period. Date of payment or date of obligation has absolutely
nothing to do with the section 179 deduction.
Sure. But from a legal standpoint the taxpayer only has to
say, "Oh, sure we put it into use on December 31. We held
the door open with it on our way out to the New Years
party." If there's no evidence it didn't happen, that's
sufficient for a court of law.

Stu

Moderator:
Excusez-moi! This is an unbelievable suggestion. It's my
fault for not catching this nonsense before Harlan did.
 
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S

Seth Breidbart

D. Stussy said:
(e-mail address removed) wrote:
Technically, yes, you are correct. However, on the flip
side, how is the IRS going to prove that deliver didn't
happen on or before December 31 and that you didn't have a
chance to set it up on the last day of the year?
Tax fraud is easy to commit, and sometimes hard to catch.

Sometimes it's easy to catch, if they suspect it.

If the IRS wants, it can ask UPS for the delivery record.

(If the computer was delivered on 12/30, and you used the box
to put refreshments on during the company's party that evening
but didn't use the computer itself until the following year,
you _might_ have a case.)

Seth
 
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H

Harlan Lunsford

Tax fraud is easy to commit, and sometimes hard to catch.

Sometimes it's easy to catch, if they suspect it.

If the IRS wants, it can ask UPS for the delivery record.

(If the computer was delivered on 12/30, and you used the box
to put refreshments on during the company's party that evening
but didn't use the computer itself until the following year,
you _might_ have a case.)
Not even then, Stu.

Equipment must be (unpacked and set up and) ready for use.
Don't necessarily have to turn it on, but set up it must be.
I've bought too many computers, mostly in December too, not
to know this one. Let's see now, Radio Shack Model I; model
IV, model 1000, DTK, .... about 10 since 1978 when I wrote
my first tax programs (no software back in dem dar days.

ChEAr$,
Harlan Lunsford, EA n LA
 
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M

Mark Bole

For a cash taxpayer, charging to a credit card is considered
paid. What happens to a computer purchase charged to a
credit card when shipped on 12/21/2005 but is not delivered
until Jan, 2006?

I think Sec 179 deduction requires the computer to be in
service by 12/31. If yes, how do I book the other side of
the transaction -- prepaid or fixed asset? And is TurboTax
Business going to handle it properly?
Harlan Lunsford wrote:
[...]
(If the computer was delivered on 12/30, and you used the box
to put refreshments on during the company's party that evening
but didn't use the computer itself until the following year,
you _might_ have a case.)
[...]

Equipment must be (unpacked and set up and) ready for use.
Don't necessarily have to turn it on, but set up it must be.
Two questions:

1) the OP asked about "booking the other side of the
transaction". If the credit card was used on 12/21/2005 but
the asset was not placed in service until 2006, am I correct
that there is no tax-related transaction for 2005?

2) If a business already has a computer or a truck in service,
and the asset is taken into a shop for a week for repairs,
maintenance, or upgrades, I assume it would still be considered
in service during that time. So, suppose a business purchases
a computer or truck at the end of December 2005, and then, in a
separately itemized transaction, pays the vendor a service fee
to install, patch and configure separately purchased software
(computer) or to install separately purchased toolboxes and
racks (truck). This work requires turning on the computer or
driving the truck. The work is completed by the vendor in 2005
and then the computer or truck is delivered physically to the
business in 2006. Would the asset in this case be considered
in service in 2005?

-Mark Bole
 
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H

Harlan Lunsford

Mark said:
Two questions:

1) the OP asked about "booking the other side of the
transaction". If the credit card was used on 12/21/2005 but
the asset was not placed in service until 2006, am I correct
that there is no tax-related transaction for 2005?
Correct. How one pays for equiment has no bearing at all as
to when it is placed in service.
2) If a business already has a computer or a truck in service,
and the asset is taken into a shop for a week for repairs,
maintenance, or upgrades, I assume it would still be considered
in service during that time.
Correct. Just like temporary absences of a dependent child
does not negate the exemption for the year, even if the child
went on Christmas vacation and didn't return until Jan 2nd.
(I know; a child is not equipoment! grin)
So, suppose a business purchases
a computer or truck at the end of December 2005, and then, in a
separately itemized transaction, pays the vendor a service fee
to install, patch and configure separately purchased software
(computer) or to install separately purchased toolboxes and
racks (truck). This work requires turning on the computer or
driving the truck. The work is completed by the vendor in 2005
and then the computer or truck is delivered physically to the
business in 2006. Would the asset in this case be considered
in service in 2005?
The equipment must be available for and ready for service in
the taxpayer's trade or business. If it hasn't arrived yet,
it can't be ready, willing and able.

For tax deductions, as in real life (and love), timing is
everything.

ChEAr$,
Harlan Lunsford, EA n LA
 
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D

D. Stussy

I can't believe you said that! About the "how is the IRS
going to prove.... etc."

It's not UP to the IRS to prove anything; proof that an asset
was placed service on any date is incumbent upon the taxpayer.
Period. Date of payment or date of obligation has absolutely
nothing to do with the section 179 deduction.

(shaking his head)
I agree that perhaps my response was out of character.
Remember that I did say that the OP's concern that
technically it isn't allowed is correct.

My point was that the entire paper trail that does exist
(and wasn't created with any fraudulent intent) would imply
a different result, and that there's no way to tell from it.
Often, all we have is the paper trail. Do you normally
have your clients log the actual delivery dates/times of all
the assets they buy and want to IRC 179 expense? I believe
that would be an undue burden that goes beyond what the law
requires.

In this case:
Can the taxpayer prove physical receipt before year end?
Probably not. Can the IRS prove physical receipt after year
end? Probably not. The purchase records favor the taxpayer
in the burden of proof. The IRS has nothing to shift the
burden back to the taxpayer.

Are you certain that it's not "constructively placed in
service" if actually placed in service immediately upon
physical receipt and available for delivery before year end?
(cf. "constructive receipt of income")
 
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H

Harry B.

For a cash taxpayer, charging to a credit card is considered
**shkip**

I am appalled, simply appalled! If we're going to allow TP
to claim the section 179 deduction in *either* year, we
*must* tell him to claim it in the year that the tax benefit
is greater. If TP's marginal tax rate - remember to include
SE tax, if any - will be higher in the later year, after the
time value of money [the old 'discount rate'] is taken into
account, we're less than professional if we allow him to
claim the deduction in the earlier year. LOL :)
 
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Steve Pope

Sure. But from a legal standpoint the taxpayer only has to
say, "Oh, sure we put it into use on December 31. We held
the door open with it on our way out to the New Years
party." If there's no evidence it didn't happen, that's
sufficient for a court of law.
If I were either a court or an auditor, and it emerged that
TP mis-stated the date when a piece of equipment went into
service, that in my mind would cloud the TP's accuracy of
reporting in general. Say, for revenues and suchlike, and
I'd want to look at all that closer.

Isn't it better to be squeaky-clean and report the correct
date?

Steve
 
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