Section 179 deduction

Discussion in 'Heavy Equipment & Pavement' started by YellowDogSVC, Nov 17, 2012.

  1. KrayzKajun

    KrayzKajun LawnSite Fanatic
    Messages: 10,737

    I really wasnt planning on any big purchases for 2013 except a sandbagging attachment for my new company. But my CPA thinks i should go ahead and trade in or sell my skidsteer for a larger tracked machine sooner than later. Hes a personal friend of the family and handles the financials for both the companies my mom manages so i usually take his advice.
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  2. Duekster

    Duekster LawnSite Fanatic
    from DFW, TX
    Messages: 7,961

    If you were in a partnership I could see the reasoning. You buy it personally then lease it to the company. But If you are a pass through and a sole then why bother? Did he give you a reason?
  3. TX Easymoney

    TX Easymoney LawnSite Platinum Member
    Messages: 4,109

    In partnership, he said it last year in passing...I didn't question him though....maybe so I could increase my own income relative to partner...
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  4. Duekster

    Duekster LawnSite Fanatic
    from DFW, TX
    Messages: 7,961

    I signed for much of the equipment then gave away two truck when I went through a partnership breakup. If you buy it and lease it to the company several things happen.

    You can take a loss ( depreciation) on it beyond what the company earns say against the wifes income.

    You own the equipment and it is not partly owned by the partner so if there is a break up you still have it.

    True partnerships and many of them fail sooner or later.
  5. britsteroni

    britsteroni LawnSite Senior Member
    Messages: 334

    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...
  6. britsteroni

    britsteroni LawnSite Senior Member
    Messages: 334

    Forgot to mention that 179 deduction limit for 2012 is $139,000.
  7. Duekster

    Duekster LawnSite Fanatic
    from DFW, TX
    Messages: 7,961

    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.
  8. AWJ Services

    AWJ Services LawnSite Platinum Member
    from Ga
    Messages: 4,281

    Mileage and depreciation have nothing too do with each other.
  9. britsteroni

    britsteroni LawnSite Senior Member
    Messages: 334

    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.
  10. YellowDogSVC

    YellowDogSVC LawnSite Gold Member
    from TX
    Messages: 3,792

    I think owning your stuff is wise.. Can't say I followed my own advice recently.

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