Same As Cash

I have been receiving some questions as to whether the Section 179 expensing election requires that you pay for the asset, such as a vehicle weighing more than 6,000 pounds, in full or if you can finance it.  This brings up one of the biggest mistakes I see people make, causing them to overpay their taxes, both because of ignorance and lousy bookkeeping.     

For income tax purposes, how you finance a purchase is irrelevant for purposes of deductibility, including the Section 179 election, which is now up to $100,000 per year.  It is exactly the same whether you pay cash or put zero money down and take out a loan for 100% of the price. 

Likewise, using a credit card is considered to be the same as paying cash for income tax purposes, regardless of when the card is paid off. You can literally go to a store, such as Best Buy (where we bought our three most recent computers) on December 31, use your credit card to buy $50,000 of computers and other business equipment, and you can claim a Section 179 deduction for the full $50,000 on this year's income tax return, as long as you plug them in and start using them before midnight.  An often overlooked requirement of the Section 179 deduction is that the asset be placed in service during the tax year for which the deduction is being claimed; not just paid for.  The credit card bill won't be received until next year; but that doesn't matter for tax deductions.    

A lease of a vehicle or other business equipment does not qualify for the Section 179 unless it is a disguised purchase, such as a lease to own with a one dollar buy-out at the end. 

If you have a loan for the purchase, you can then also deduct the interest as a business expense on the same schedule where you claimed the Sec. 179.  Likewise, finance charges on deductible credit card purchases can also be deducted.  This is another often overlooked deduction by people, and even tax pros, who believe that vehicle and credit card interest are always nondeductible personal interest. 

As I have said too many times, most people miss out on claiming their full possible deductions because of crappy bookkeeping (to use the technical term).  They only look at just their checks paid out for the previous year and miss out on the purchases made through loans and credit cards.  That is why it is so important to have everything properly set up on QuickBooks.  It does a beautiful job of combining purchases made through all of those means into the proper years. 

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 5/30/2003 12:44:00 PM Send this post: