Discussion:Section 179 Strategies
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Discussion Forum Index --> Tax Questions --> Section 179 Strategies
| 21 June 2007 | |
| I have several clients for whom I prepare their business tax returns but they prepare their personal returns. Thus, they do not involve me in their personal income determination and simply ask that I maximize their current depreciation through Section 179. I typically do not choose to Section 179 assets with 3 year asset lives but do Section 179 the longer term (but of course eligible) assets first. However, I've heard differing opinions on depreciating vs. Section 179 the remaining eligible assets. One camp says to maximize the carryover, and I can appreciate this opinion but only if there will certainly be income in the following years. If there is a start-up that will likely have two or three years of losses before they take off, I tend to prefer the depreciation route. Any other strategies commonly used would be interesting in this discussion. Carryover Section 179 or current depreciation, that is the question! | |
| 21 June 2007 | |
| I would have the client sign off if they want to take 179 now, saving them only income taxes at a lower rate, rather than taking regular depreciation over several years, the future holding higher taxes and SE tax. Why save 15 cents now when you can save 40 cents next year? | |
Death&Taxes (talk|edits) said: | 21 June 2007 |
| You do not mention whether your returns are 1120S or 1065, but in the former, 179 is limited to profit plus the salary the shareholder/officer takes, and there are limitations based on profit on the 1065. Trying to please everyone is the formula for failure. Kevin is right; the decision should be made at shareholder/partner level, but I suspect this is complicated when there are multiple owners in a partnership or S Corp. You can only see each of the individual returns in terms of the entity you are preparing; the 'pass-throughees' and their accountants need to make some input. | |
| June 21, 2007 | |
| The first rub is that you allow them to do their personals. NO NO NO NO NO! Never ever ever. (Well, I have one...) But usually never. You charge your year end fee for all, personal is included! No option.
Now, practicality usually rules for me. I like short depreciation schedules to mess with, so nearly always take 179 unless there's little to no income or a loss. Tho' sometimes with a loss, I'll take it and let it CO to the next years. | |
| 21 June 2007 | |
| I agree with JR1 that you should always do personal return if doing corporate or partnership if possible(sometimes it is hard to get multiple partners to use the same accountant). However I agree with Kevin that it is best to look at future year benefits as well. Had a client that wanted to save 25% instead of 35% in future years. | |
| 21 June 2007 | |
| Davis, aren't you talking about electing excess 179 so you get a bigger deduction the following year. In Kevin's senario, if I have a big piece of machinery bought this year with little income this year and therefore little 179 allowed,the next year I could save the 40 cents of tax using the carryover from the previous year 179. This works well if I have no capital purchases the following year to offset the higher income produced from the new machine purchaced the previous year. Instead of getting the second year rate of depreciation (24.49%) I can use a much higher amount of 179 carryover, possibly has high as 100%. Its a good strategy in certain circumstances. | |
| 21 June 2007 | |
| Thanks for your comments. To answer your questions, both clients are S-Corps and I would certainly prefer to do their personal returns but they've been doing them for years and so on and so on...... Anyway, so much for complete tax planning. It sounds like the general philosophy (absent the client allowing an insight) is to max out the carryover instead of taking the current year depreciation assuming that they expect higher income in the next year. I'd still be interested to hear what others think in relation to start-ups that take two or three years to turn, but I know that is going to be largely client specific to their preferences and needs. Though one client's words were 'let's max out depreciation this year and let next year work its way out when we come to it', I think another discussion with them is certainly warranted as y'all suggest. Be happy to hear any other comments you might have in this regard. | |
| June 21, 2007 | |
| I disagree with maxing the carryover if that wasn't clear. I've been at this too long to have seen too many things change, and suddenly, poof, what you thought would happen didn't. I try to maximize cash to the client now, esp. in startups, when they need it most. | |
| 21 June 2007 | |
| Take the 179 if there is enough income. Who knows what the future will bring. | |
| June 21, 2007 | |
| I would most likely limit Sec 179 if the expectation is that the CO will not get released in the next 2-3 years. | |
| 21 June 2007 | |
| Serious thought should be given to matching depreciation to debt amortization. The value of the immediate deduction is overrated and not much consolation when cash flow is insufficient to pay income taxes. ♫ | |
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