I have a large number of items in my “To Be Posted” folder.  This was from March 2005. 

Q-1:

Subject: Section 179 as an LLC Partner

 

Dear Ms. Kerstetter,

 

Nobody can seem to answer my question.  I am an equal partner of a 3 member LLC (taxed as a partnership).  I purchased a large SUV (over 6000 lbs) in August, 2004.  I made this purchase with my own money primarily for my business activities on a daily basis, but figured it would be a good vehicle to have for certain personal usage (family vacation).  My question is this:

 

Can I deduct the 84% usage on this vehicle as a Section 179 deduction?  If so, where do I make this deduction (what form)?  Do I simply adjust line 17 on the 1040 or must I make this deduction on another line?

 

Any help would be greatly appreciated,

A-1:

Unreimbursed expenses that you pay on behalf of your LLC, including Section 179 and other vehicle costs, can be claimed on Page 2 of Schedule E on a line right under where the LLC K-1 info is shown.

This has long been a very basic part of tax return preparation.  If your personal tax advisor was unaware of this, it may be time to look for someone with a better understanding of how to handle pass-through entities.

I hope this helps.  Good luck.

Kerry Kerstetter

Q-2:

Thank you very much Kerry for your answer.  I assume you were referring to Schedule E, Page 2, Line 28 (i) under Section 179 expense deduction from Form 4562.  So even though I would list my LLC's name, I would go ahead and list the K-1 info as well as my own section 179 deduction on the same line? That's where the confusion lies and why no tax preparer (and I've asked plenty) here can seem to give me a straight answer.  Some say that Unreimbursed expenses must fall under the condition:  To be deductible, the partnership agreement must state in writing that the partner pay the expenses.

The problem is that I purchased this Large SUV at my own discretion, as I felt it would make my job easier as well as come in handy for the rare trips my wife and I make.  Under these conditions, can I still claim this, even if it's not in the partnership agreement?

Thank you so much for helping me out,

A-2:

I'm not sure why this is so confusing to tax pros.  For as long as I can remember, my tax software has had an option to code business expenses, including depreciation and Section 179, to a K-1 activity.  It then prepares the appropriate backup schedules, including the 4562 for depreciation and Sec. 179, and prints the total on page 2 of the Sch. E, on a separate line under the info from the K-1. 

You don't have to put everything on the same line.  As I mentioned in an earlier post on my blog, if there are more K-1s than blank lines on the Sch. E, the program prints "See Attached" and has a backup schedule listing all of the individual K-1 and expense items.  I have had clients with 30 or 40 K-1s, so such backup lists are quite common.

IRS has never had any problems with reporting it like this, and I have prepared thousands of them.

Kerry Kerstetter

Q-3:

I just got back from visiting with another CPA.  She also said that anything declared as a Section 179 on the Schedule E must come from a K-1.  How can I do this if I purchased my SUV with my own money.  All I want to do is deduct 84% of the cost of my SUV, since that is what I use for business.  If I list it on line B, of Schedule E, Page2, line 28, What do I put as the name of that Section 179 deduction since I have no sole proprietorship or other business that made the SUV purchase for me?  Please help.  Do you do taxes for people in Nevada?

Thanks Again,

A-3:

As I said before, my tax software has always allowed me to show Section 179 property purchased by individuals for partnership & LLC business on Page 2 of Sch. E; and IRS has never complained; so I'm not sure why that CPA said that.  She probably just didn't try it.

If you're doing your return by hand, I guess you could include the 4562 and carry the numbers to page 2 of Sch. E.  Write in that they were for the LLC activity.

We do have clients all over the country, including several in the Vegas area.  Unfortunately, we are over-extended and are dropping clients in order to balance out the workload with my capacity.

Kerry Kerstetter

Q-4:

Kerry,

Thank you so much for all your help and responses in this matter.  You're doing a very nice thing in taking time out of your busy schedule to help out people such as myself.  I actually found a tax preparer today who suggested that I can use Form C and just not enter the business name, just in order to get the software to list my Section 179 deduction under my K-1 info.  This way, it will decrease my adjusted gross income like it should.  However, I'm gonna suggest your way better, as I know that the Section C is only for Sole Proprietorships.  I guess in a way, it's the same thing.  I still wish you could do my taxes over the phone, as I have already done everything else. The only thing I needed was to complete that Section 179 writeoff.  A whole lot of preparers here in Vegas could learn from you.  Anyhow, I'll have that prepare do it for me just to give me some peace of mind, as I want it done via a tax program rather than by hand.

Again, thank you so much for all your help.  My wife and I are very grateful to you.

Regards,

A-4:

That Schedule C idea is dangerous.  I recently finished resolving an IRS audit case for a client whose original preparer did just that, putting her personally paid K-1 expenses on Sch. C instead of on Page 2 of the Sch. E.

Good luck.

Kerry

 

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/23/2005 06:28:00 PM Send this post: