EXPENSING ASSETS SEC. 179

[JACKSORH]

My client started a business in July 07. He purchased equipment, grinder, trailer, and truck+plow totaling 30,000. His income from his business was only $2,000 in 2007, yet his expenses totalled $30,000. Can this amount be expensed for tax year 2007.

His other income was over $103,000. If he doesn't expense the items that were purchased, he would owe over 12,000 in taxes. Should we expense instead of depreciating these items over a set period of time?

Thanks for all of your help.

[Lion EA]

You tell him the tax consequences of his choices and let him decide. Maybe he expects higher income in his new business and wants to depreciate to use the expenses over time. He certainly seems optimistic with the equipment he bought.

By the way, if he owes $12,000 he should adjust his withholding at his $103,000 job for 2008.

[OldJack]

>>Should we expense instead of depreciating these items over a set period of time?<<

"Expensing" is actually depreciation under code sec. 179. Yes, I would write off the entire amount that qualifies for sec 179 (under the theory a bird in the hand is worth two in the bush). The Sch-C would show a large loss and the full depreciation would be allowed as he has other greater business income that allows the deduction on form 4562 flowing to Sch-C. He should be aware that he must keep those assets until after the depreciation life has ended or he will have a big taxable gain the year of disposition.

[jklcpa]

We don't know what the $103,000 of other income consists of. Of that, earned income would have to be $28K to deduct the full $30k using sec 179.

[Linda Mathey]

I agree that unless the other income is also a business and not a wage he will be limited on the Section 179 expense to the amount of income from business ventures. The extra 179 over and above the income from the business would carry forward to next year.

[kcjenkins]

Linda, 'wages' is earned income that can be used to qualify §179 expenses. Unearned income such as interest or dividends can not.

[Linda Mathey]

Linda, 'wages' is earned income that can be used to qualify §179 expenses. Unearned income such as interest or dividends can not.

KC,

Yes, I did know that but apparently forgot it in my current "brain dead state". Thanks so much for correcting me so that I did not mislead others. I appreciate your comments not just on this but on all posts. It really helps to have all the folks on this board to share with, learn from and keep all of us on the right track. Happy April 15th.