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Old 11-18-2012, 06:45 PM
Duekster Duekster is offline
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Join Date: Jan 2007
Location: DFW, TX
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Quote:
Originally Posted by britsteroni View Post
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...
If you take milage, then 22 cents of that is depriciation.
If the truck last 200K miles that is $44K
Where is the breaking point with the time value of money.
How many miles per year do you need to drive to make it worth not taking depreciation at all and using milage.

I would have to run some numbers but not sure it is worth it to take milage over depreciation and actual expenses on a truck worth worth over 30K.
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