View Single Post
Old 11-18-2012, 07:26 PM
britsteroni britsteroni is offline
LawnSite Senior Member
Join Date: Feb 2007
Location: Missouri
Posts: 334
Originally Posted by Duekster View Post
Is this the last year or the last year with the bigger deduction limits that Bush put in? I have never hit those. I am also wondering about the wisdom of taking a truck all at once and then not having the deduction for the next 4 years.
Duekster makes a great point. Many companies will finance equipment and take the complete 179 deduction in the year of purchase. While that lowers taxable income for current year, they are left making payments on the piece of equipment in future years with no tax benefit available. This information is sometimes left out or not explained clearly to the client by their accountant. Sometimes said client winds up mad when they realize what has happened in the future.

Let's put some numbers together for an example:

Company A has taxable profit of $90,000 for 2012. In using code section 179, Company A goes out and purchases new diesel pickup truck for $50,000 November 30,2012. Company A now has taxable profit of $40,000 for 2012. This might result in $10,000 saved in federal and state income taxes.

Now imagine that same diesel truck is financed for 60 months at $900/month. We'll assume $830 of principal and $70 of interest each month to keep things simple. So after December 2012, Company A will still have 59 months of payments to make. Since the entire principal was deducted in 2012, only the monthly interest of $70 will be deductible on the tax return.

So each year for the next four years Company A will pay out $9960 of principal payments it cannot deduct on the tax return. In the 5th year they will pay $9,130 of principal that isn't deductible either.

I think the 179 makes a lot of sense if you have the cash to buy the piece of equipment. If not, cash flow can become strained in years following 179 deduction. Just my two cents...
Reply With Quote
Page generated in 0.04121 seconds with 8 queries