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  #1  
Old 11-17-2012, 05:28 PM
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YellowDogSVC YellowDogSVC is online now
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Section 179 deduction

Anyone going to take advantage of the last year (possibly) of the Section 179 deduction? I'm seriously considering making a trade and picking up an attachment or two.
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Old 11-18-2012, 09:43 AM
AWJ Services AWJ Services is online now
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I was set to make a purchase but I decided against it. I will take the tax hit this year as I have no faith in the economy next year. I own everything right now and I feel that it is best to keep my money in the bank and have no payments. It some cases it could be worthwhile if you your net was high enough.
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Old 11-18-2012, 08:45 PM
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Quote:
Originally Posted by AWJ Services View Post
I was set to make a purchase but I decided against it. I will take the tax hit this year as I have no faith in the economy next year. I own everything right now and I feel that it is best to keep my money in the bank and have no payments. It some cases it could be worthwhile if you your net was high enough.
I think owning your stuff is wise.. Can't say I followed my own advice recently.
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Old 11-19-2012, 12:41 AM
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Depreciating a piece of equipment in one year but paying on it for multiple years is a receipe for a tax nightmare.
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Old 11-20-2012, 10:50 AM
zabmasonry zabmasonry is offline
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Your accountant likely wants you to personally own the equipment so that it is not an asset that is subject to the companies liabilities. Since you actually own the asset, if anything happens to the business then you retain the value of the asset instead of losing it with the business.
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Old 11-18-2012, 09:47 AM
Duekster Duekster is offline
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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.
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Old 11-18-2012, 06:26 PM
britsteroni britsteroni is offline
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Quote:
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...
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Old 11-18-2012, 06:45 PM
Duekster Duekster is offline
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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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  #9  
Old 11-18-2012, 07:45 PM
AWJ Services AWJ Services is online now
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Mileage and depreciation have nothing too do with each other.
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  #10  
Old 11-18-2012, 08:07 PM
britsteroni britsteroni is offline
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Quote:
Originally Posted by Duekster View Post
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.
You can still use the straight line method of depreciation and claim mileage. And I'm not sure what you mean with the 22 cents. The mileage rate after June 30, 2011 is 55.5 cents per mile. There are a few other rules to claiming both straight line depreciation and mileage. See IRS publication below for more info.

http://www.irs.gov/publications/p463...blink100033935
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