Depreciation and Tax deduction question.

Just remember, you guys with real big payments. If you pull off to much depreciation and sec 179 in year one, in latter years you will find yourself making those big payments with no depreciation to declare and trying to come up with a big check to pay Uncle Sam.

Reasons like this is why I say to educate yourself about taxes. The wrong tax man can make this year look very good with sec179 then in 3-4-5 years the new owner operator can go broke trying to pay taxes and make his big truck payment.

I'm not bashing sec 179, I love it, I'm sure most successful owners use it, it's a great tool. I'm just trying to stress how important it is for these new hands to understand taxes

 

True. It is advantageous only in certain instances. If one is going to be paying on something for a few years, maybe not the best move. Something like an APU, doing a 179 would be the cat's meow. I did a 179 on a John Deere Gator that I used to grade and maintain the parking area I keep the truck at home and to do snow removal in the winter. My 2015 2500 Silverado, that got put on depreciation schedule just like the semi did.

A good accountant/tax advisor is always a good source of guidance. While I keep the books, I use a very good CPA in town that is a real pro when it comes to tax issues. Money well spent. For a few hundred a year in expense to her for tax preparation, guidance, and handling payroll tax filing, I have reaped thousands in tax savings and peace of mind that everything is on the up and up with the IRS. She does books and taxes on many trucking operations and agriculture businesses. Her primary focus is businesses. The typical H&R Block type of tax preparer is usually not well versed in the nuances of trucking and business tax regulations.

 

I totally agree with you on your advice. That is a great way to find yourself in a jam by "only" taking someone else word. There is so much free information on the web to where there is no reason anyone can't walk into a professional tax service office and at lease know the terms used. How will you know what fit your needs if you don't know what your looking for? I can go on YouTube right now, spend at lease 2 hours watching tutorials and be armed with some kind of knowledge on the subject.

 

For someone with payments, 179 can be dangerous, but for those of us that invest cash it allows us to not take the tax hit up front.

Second, it gives the tax payer the flexibility to choose when to take the tax hit. For me, section 179 gave me an opportunity to keep my income low for a number of years, which allowed my kids to qualify for nice college grants and scholarships. That alone was worth about 60K, each. Now I pay a little more taxes than I would have, but much less than the benefit the kids received.

A good accountant or a good understanding of tax law will help decide when to take a section 179 or not.

 

Great example. And that, boys and girls, is how tax planning can work in your favor. A good CPA can show you the nuances of how to make things work in your favor. No one person's situation is identical to another.

 

Sec 179 can only be used one time,the year the asset was purchased. If multiple assets were purchased during that year, then 179 can be used for each asset .

You must elect to use 179 the year of purchase, you can't use it in years 2- 3- etc.

The "cost" of the asset would include the truck plus FET plus warranties.

Now when you go to dispose of the truck, you can either trade it in on a newer one, or you can sell it. Trading it in on a newer one (like kind exchange) is treated by the IRS one way and selling it is treated another.

Read, read, read, learn, learn, learn and find a tax pro.

 

But there is a play on this. True you use the 179 on something you purchases the same year, but there is no "negative" tax situation. Using 179, you could only depreciate the purchase to the point where you have zero tax for the year. If you have any amount left that could not be depreciated because you reached a zero tax level, the residual amount can be carried over to the second year.

For instance, a truck (and all associate nonsense like FET, warranties, etc) has a total purchased value at $150,000. But you had a net profit of, say, $75,000. That $75,000 gets wiped away as far as paying tax. But that leaves $75,000 that you did not depreciate from the original $150,000. You can take that $75,000 and depreciate it the next tax year.

Think of 179 as accelerated depreciation, as that is what it is.

 

If you lease/purchased the truck, 100% of the lease payment is a write off. When you get into the short purchase portion, you can depreciate the truck at that time.

 

it gets a little trickier than that. Some lease/purchase deals are treated no different than loan payments on a full purchase for tax purposes. In other words, no different than if you bought the equipment and going to depreciate. Depending on situation, they may not be a true Lease in the sense of being able to write off the payments you make on it. A CPA or tax lawyer is one to check on that. It is all in the wording on the contract. Leasing a truck from Ryder and using it, yes, that most likely would allow what you describe. Doing a lease/purchase... maybe not so much.