Tax Trap #4 -- The Quagmire of Depreciation
If you are a Small Business Owner or Self-Employed Person,there's one especially lucrative tax break that not onlyputs money in your pocket, it also makes the filing ofyour business tax return much simpler.
What am I talking about? It's called the Section 179deduction, and if there's one tax break you need to understand, this is it. Here's why:
The Section 179 deduction enables the Small Business Ownerto "expense" (i.e. deduct in the current year) up to$102,000 of the cost of most business equipment, ratherthan use those stingy and complicated depreciation rulesthat require you to write-off the cost over five or moreyears.
What's so great about that?
Think about it like this: I've got a dollar and I'd like togive it to you. You have two choices -- I give it to younow, or I give it to you 5 years from now.
Which do you prefer?
Obviously, you'd rather have it now, right?
And why is that?
Because of what you learned way back in Finance 101:something your banker calls "the time value of money."
I'll spare you a boring textbook definition. Instead,let's just assume we agree on this simple point: Is a dollar worth more today or 5 years from today?
It's worth more today.
And that's why the Section 179 deduction is so valuable.
Let's use an example to bring all this financial theoryinto reality.
You buy $5,000 worth of office equipment in 2004. Undernormal depreciation rules, you wouldn't get to take a deduction for $5,000 in 2004. Instead, you'd write offthe $5,000 over 6 years -- part in 2004, part in 2005,etc.
If you're in the 35% tax bracket, you get your $1,750in tax savings over 6 years. Yawn. That's a long time!
You'd get your deduction, and the resulting tax savings,but you'd have to wait 6 years to realize all the benefits.
Section 179 says that if you meet certain requirements,you can deduct the full $5,000 in 2004. You reduce yourtaxes by $1,750 in Year 2004.
So let me repeat my rhetorical question: Uncle Sam has$1,750 he'd like to give you. When do you want it? Allat once, or spread out over 6 years?
That's the beauty of Section 179.
But you have to meet certain requirements to benefitfrom Section 179. One requirement concerns thetotal amount of equipment you can deduct rather thandepreciate. In 2002, the amount was $24,000. And for2003, the amount was originally set at $25,000.
Then Congress and the President passed a new taxbill in late May 2003 that raised that amount to awhopping $100,000. And since that $100,000 getsadjusted for inflation, in 2004 the maximum Section 179deduction is now $102,000.
Never liked depreciation? Well, you can pretty muchkiss it good-bye now. If your business buys more than$102,000 of equipment in a single year, it ain't so"small" any more! So this new law should cover allsmall businesses. Enjoy!
One final note: A few other requirements must be met toclaim the Section 179 deduction. Here's a brief, butnot comprehensive, overview:
1. Most personal property used in a trade or businesscan be deducted via Section 179. Real property cannot.Typical examples of personal property include: officeequipment such as computers, monitors, printers andscanners; office furniture; machinery and tools. Realproperty means buildings and their improvements.
2. The $100,000 amount (adjusted for inflation) can beused through 2007. In 2008, unless new legislation ispassed, the amount goes back down to $25,000.
3. There are special rules regarding the application ofSection 179 to the purchase of business vehicles.(Where there are tax breaks, there are always expections!)For example, the special "SUV rule" that allowed 6,000 LBvehicles to be fully deducted (up to the $100,000 amount)was recently changed to $25,000, effective October 22,2004.
4. Your total Section 179 deduction is limited tothe business' annual profit. In other words, you cannotuse the Section 179 to create or increase a loss.
This is known as the "taxable income limitation." For"C" Corporations, this limitation is very cut and dried.But if your business is an "S" Corporation, Partnership,LLC, or Sole Proprietorship, it may not be as limitingas it seems. For these non-"C" Corp businesses, theSection 179 deduction can be used to offset both businessand non-business income.
And if you're married filing jointly, the Section 179deduction can offset your spouse's income, includingW-2 income.
Example: You start a new business in 2004 that ends upwith a loss for the year of $5,000 (before taking theSection 179 deduction). Your spouse has W-2 income of$60,000. Even though your business is unprofitable,you can still take the full Section 179 deduction of $5,000(again, assuming your business is an entity other thana "C" Corporation).
Be sure to consult with your tax professional toget the scoop on all the Section 179 rules.
Wayne M. Davies is author of 3 tax-slashing eBooks forthe self-employed, available separately or as a 3-volumeset, "The Ultimate Small Business Tax Reduction Guide".http://www.YouSaveOnTaxes.com/ultimate-guide
To get your free copy of Wayne's 25-page report,"How To Instantly Double Your Deductions" visit:http://www.YouSaveOnTaxes.com
'The Untouchables': How Columbia and N.Y.U. Benefit From Huge Tax Breaks The New York Times
These are the U.S. states where homeowners pay the most in property taxes—California isn't in the top 5 - CNBC
These are the U.S. states where homeowners pay the most in property taxes—California isn't in the top 5 CNBC
Two measures passed to save money for Bedford County residents at Board of Supervisors meeting - WSET
Port St. Lucie lowers millage rate amid complaints over rising property taxes - WPTV News Channel 5 West Palm
Port St. Lucie lowers millage rate amid complaints over rising property taxes WPTV News Channel 5 West Palm
Spain charges pop singer Shakira with tax evasion for a second time and demands more than $7 million - The Associated Press
Intuit Pushing Claim That Free Tax-Filing Program Would Harm Black Taxpayers — ProPublica - ProPublica
Intuit Pushing Claim That Free Tax-Filing Program Would Harm Black Taxpayers — ProPublica ProPublica
Hunter Biden in GOP's crosshairs again as tax panel sets vote on disclosing more confidential info - POLITICO
Hunter Biden in GOP's crosshairs again as tax panel sets vote on disclosing more confidential info POLITICO
Two Promoters Charged in Alleged Nationwide Illegal Abusive-Trust ... Department of Justice
Roofing company loses court fight over unpaid employment taxes Iowa Capital Dispatch
South Texas county orders deleted delinquent taxes reinstated and paid, including sheriff’s - Border Report
South Texas county orders deleted delinquent taxes reinstated and paid, including sheriff’s Border Report
Spain charges pop singer Shakira with tax evasion for a second time and demands more than $7 million - ABC News
Spain charges pop singer Shakira with tax evasion for a second time and demands more than $7 million ABC News
Analysis | There's an Obvious Way Rishi Sunak Can Fix Inheritance ... The Washington Post
City taxes projected to drop (a smidge) for Mankato homeowners Mankato Free Press
This Is How Super-Healthy Americans Plan Their Taxes Yahoo Finance
Ohio lawmakers take aim at growing property taxes The Highland County Press
Efforts to eliminate grocery tax stall despite bipartisan support Muskogee Daily Phoenix
How do Roth IRA taxes work? USA TODAY
13-Minute Gulfport Council Meeting on Taxes and Budgets The Gabber Newspaper
Columbus Township parcel fetches $103K at tax sale timesobserver.com
Taxes and a new school Boothbay Register
Deadline for Pittsburgh Mills Mall owners to pay millions in taxes, avoid sheriff’s sale looms - WPXI Pittsburgh
Deadline for Pittsburgh Mills Mall owners to pay millions in taxes, avoid sheriff’s sale looms WPXI Pittsburgh
City Council approves tax increase in Naples for 2024, despite ... Naples Daily News
Win for Taxpayers in Transition Tax Case Would Cast 'Cloud of ... - Thomson Reuters Tax & Accounting
Win for Taxpayers in Transition Tax Case Would Cast 'Cloud of ... Thomson Reuters Tax & Accounting
Watch Out New York – New Jersey Wants Its Taxes Too! - Employee ... Mondaq News Alerts
East Cleveland development project triggers excitement and ... News 5 Cleveland WEWS
Get ready for tax year 2023 now TheStreet
VOICES: Ohio needs to close its unjust tax foreclosure loophole Dayton Daily News
Board Prepares To Set Property Taxes | Webster Kirkwood Times ... Webster-Kirkwood Times, Inc.
Will You Owe Taxes When You Sell Your Home? Morningstar
Fulton board to consider tax breaks for data center, housing projects - The Atlanta Journal Constitution
Fulton board to consider tax breaks for data center, housing projects The Atlanta Journal Constitution
Grocery sales tax break is missing some consumers – Tennessee ... Tennessee Lookout
38 States That Don't Tax Social Security Benefits The Motley Fool
Man buys 58 properties in Luzerne County delinquent tax auction The Times Leader
2023 Senior Tax Freeze application deadline fast approaching ... Philadelphia Water Department
Let’s Focus on Property Tax Solutions, Not Political Soundbites Flathead Beacon
Median Household Income After Taxes Fell 8.8% in 2022 U.S. Census Bureau
St. Pete Beach Discusses Loud Music, Budgets, and City Manager The Gabber Newspaper
Two Tax Shelter Promoters Found Guilty in Billion-Dollar Syndicated ... Department of Justice
These are the U.S. states with the highest property taxes—New York and California aren't in the top 10 - CNBC
These are the U.S. states with the highest property taxes—New York and California aren't in the top 10 CNBC
Johnson County antique mall forced to close as owner owes $62K in taxes, state says - Kansas City Star
Johnson County antique mall forced to close as owner owes $62K in taxes, state says Kansas City Star
How AI will impact the tax profession Thomson Reuters Tax & Accounting
Gloucester County residents to vote on proposed tax increase bond referendum 13newsnow.com WVEC
QCDs: A Tax Break Worth the Hassles - WSJ The Wall Street Journal
A guide to: Sales and use tax returns efficiency Wolters Kluwer
California Democrats misfired by taxing guns and ammo Los Angeles Times
Property tax bills arrive next month. Here is what's new Fort Worth Report
Virginia sports betting tax revenue doubles year over year 13newsnow.com WVEC
Tax Take: A Roller Coaster Week Ahead - Tax Authorities - United ... Mondaq News Alerts
Northwest Arkansas sales tax revenue rises 5.68% in September ... talkbusiness.net
Hinds Tax Collector's Office to reopen Tuesday WAPT Jackson
Social Security 2023: 5 Tax Breaks Social Security Recipients Qualify For But May Not Know About - Yahoo Finance
Social Security 2023: 5 Tax Breaks Social Security Recipients Qualify For But May Not Know About Yahoo Finance
Pay Taxes Dare County, NC (.gov)
Pay Taxes Online Clatsop County (.gov)
Small Business Tax Deduction - Write-Off Bad Debts
Practically every small business has receivables that it cannot obtain from clients. If your small business doesn't have any such receivables, consider yourself lucky.
Need an Offshore Sales Office in a Tax Free Environment?
The 100 year old investment-banking firm of Warburg, Dillon Read (on Park Ave. N.
Electronic Commerce Taxation and Pakistan
Assume a buyer in Pakistan downloads software from the Internet for a 30-day trial. If he likes the software, he submits his credit card information and receives an authorization code that allows him unrestricted use of the software.
Need a Copy of Your Tax Return Information?
Taxpayers have two easy and convenient options for getting copies of their federal tax return information - tax return transcripts and tax account transcripts - by phone or by mail.A tax return transcript shows most line items from the tax return (Form 1040, 1040A or 1040EZ) as it was originally filed, including any accompanying forms and schedules.
Tax Strategy - Let Washington Pay for Your Corvette, Porsche, or Air Plane
Deducting Your Auto ExpensesAuto deductions are a very complex topic. So, to clarify, we are not going to attempt to cover all of the intricacies of the subject.
IRS Offer-in-Compromise, Hype or Hope?
"Settle for Pennies on the Dollar! IRS debts settled for $20Wipe out the Penalties with an Offer"-such is the language of Offer-in-Compromise promoters. What they fail to tell you is that one has to qualify for an Offer and few taxpayers will be able to meet the tough standards for an OIC.
Tax Records - What You Should Keep And For How Long
Many taxpayers are confused about how long they should keep tax records. The term "tax records" refers to your tax returns and the documents that support the information in the returns.
Failure To Pay Employment Taxes - Penalties
As an employer, you must pay employment taxes if you have employees. Fail to pay and the IRS will rain all over your parade.
Tax Investigation - What You Need To Do
The knock on the door from a Tax Inspector is something that every taxpayer fears. Your immediate thoughts will be "Have I been honest with my tax returns or not".
Fiscal Deity: Tax Consultant
Strategic planning throughout the year results in a minimal tax balance. The objective of planning your tax payables is not to prevent paying taxes, it is to pay no more than your fair share of taxes, and keep your money where it earns you the most.
How To Get An Instant Pay Raise
As a gentleman was leaving my class recently, he wanted me to clarify something I had said. He was making sure that he should take his four or five thousand dollar tax refund and pay off debt.
SFR Substitute for Returns: IRS Action on Non-Filers
In the latest Star Wars episode, the evil empire executes a brutal revenge on the Jedi. While the IRS is not an evil empire (and due to the Revenue Reform Act of 1998 not very brutal anymore); it too is executing revenge on those who do not comply with filing their tax returns.
Euro Tax Haven Threat
Media reporting of a new EU savings tax directive has left many people wondering whether European tax havens could soon become obselete.The July directive requires banks throughout Europe, including low and no tax areas such as Gibraltar, Monaco, Malta and Andorra, to disclose bank account owner information to their home country's tax authority.
Small Business Tax Issues for Self-Employed Individuals
The United States is a nation of entrepreneurs. There are literally tens of millions of self-employed individuals that enjoy pursuing their dream business.
Correspondence From The IRS - Yikes!
It's a moment every person dreads. You pick up the mail and there is an envelope from the IRS.
Are You Overpaying Taxes If You Use Tax Preparation Software?
For many business owners the answer to this quandary is tax preparation software. Fill out a fairly simple interview, click "print" and out comes a completed return that will pass muster with the IRS.
What Is Tax Law?
The federal tax code is complex. This complexity generally arises from two factors: the use of the tax code for purposes other than raising revenue, and the feedback process of amending the code.
How to Cut Duty Cost and Increase Profit as an Importer
Import duties continue to be significant elements in the cost of international trade. Yet many companies and businesses still pay more duties than the law requires - which impacts adversely on landed cost and ultimately on business profitability.
IRS Obtains More Than 100 Injunctions Against Tax Scheme Promoters
The IRS has obtained civil injunctions against more than 100 promoters of illegal tax avoidance schemes and fraudulent return preparers in an ongoing crackdown that began in 2001. Many of the injunctions, obtained in cooperation with the Department of Justice, also order the promoters to turn over client lists and to cease preparing federal income tax returns for others.
Taxation of Forgiven Debt: The 1099C & You
Often people fall on hard times and stop paying on credit cards. After a while the account may go to an outside debt collector who might offer a settlement of the debt for 30-40% of theoriginal sum.
|home | site map|