179 Tax Deductions - Write off tractor

[skidoo]

Can anyone help an idiot (me) with a queastion. How does the 179 and Bush plan apply to me? I'm wanting to purchase a tractor for my landscape business? Would it be better to buy before the end of the year or after the first of next year?

This year has been terrible because of the economy and drought. It is my 3rd year in business and my accountant has kept me to breaking even or a loss. I'll truly be at a loss this year.

I'll talk to her as well, but give me y'alls opinion.

Thanks

I believe it applies to business use that would normally be depreciated, not just farm use. But, if you are already breaking even or at a loss, I don't see how another expense would help. Of course, if you are confident that the "investment" in new equipment will result likely result in additional business and profit in excess of the expense of the investment, then by all means, go for it. But, then as you said with the economy, I wouldn't place my bets on that business improving anytime soon.

I believe the IRS will be taking a closer look if you don't turn a profit in at least two or three out of the first five years. Ask you accountant about that. You may be better off to turn a few hundred in profit rather than a loss.

Anyway, if you are that close to even for this year, it doesn't make sense to me to take a 179. If you have to have it now, then depreciate it out into future years as much as possible. But, if you can wait until January, then you have another year to decide how you want to treat it. If you then have a big profit year, you can then benefit from the 179 expense. I don't think the stimulus plan regarding section 179 expenses would make any difference unless you are a big buyer of equipment, i.e. in excess of $128K, which was the amount allowed before the stimulus plan. After the plan, you could expense up to $250K. So, if you are near the break even point, I would be looking at ways to turn a profit rather than find new expenses...

I am not an accountant, so none of my comments above should be taken as advice.

 

[skidoo]

Here is another thing to consider,

If your taxable income puts you in the 10% bracket this year, and you expect more income to raise the bracket in future years, then you would only be saving 10% on that expense for this year. So, I think it would be better to simply depreciate over future years.

But, if say your taxable income put you in the 35% bracket this year, and you expect less income to reduce your bracket in future years, then you would be saving 35% on that expense for this year. In this case, I think it would be better to expense as much as you can with the 179. That is, unless you expect your bracket to increase further due to tax law changes for future years. That is where you have to keep guessing...


Say you purchased a tractor for $10K. It would be kind of silly to say expense this year the whole $10K and save $1K in taxes (10% bracket) and then three years from now sell it for $6K, re-capture and pay an extra ($2.1K) in taxes because you are then in the 35% bracket...

Then again, you might not care and just be happy to have the income that puts you in the 35% bracket...


There are a lot of "what if" variables at play...

 

[randy41]

There are a lot of "what if" variables at play...

This is why its best to consult your CPA. I think I posted this before but if you didn't see it then be aware that a 179 deduction is limited to your profit with the balance being carried forward to future years.

 

[Rowdius]

I've been doing some preplanning on my taxes this year. I am showing a small profit on the farm, but I bought my kioti new this year. Besides the normal 179 deductions, there is a special one timededuction that applies to machines bought new. In my case that deduction is well over $7,000. If I claim it I go from showing a small profit to a several thousand dollar loss. It will be okay for me to show a loss this year, but I'd really need to show a profit next year. With the economy like it is, there is no promise that I will, but then again, I will lose this deduction next year (I think.)

I'm going to hire my taxes done this year I think.

 

[newbury]

Timely thread revival -
My situation - My normal tax preparer had a stroke so she's not working but she's getting better.
I just bought $20K of timber land and now have a total of about 300 acres, all timberland/hunting leased with mostly clearcut/replanted or 20yr growth.

I'm wanting to buy a TLB to maintain roads, haul some old stock out, etc.
I'm sure it will be tax deductible somehow eventually, but presently I'm top bracket, but plan on retiring within 2 years and probably drop down a bracket or two.

Can anyone post some good links for educational info before I walk into a CPA?
I'm pretty sure most CPA's around here (DC) are not that familiar with timber tax/small farmer laws.

Any other advice would be welcome also.
Thanks.

 

[jpsheb]

<bump>

I know this thread's been inactive for a while, but tax rules (and brackets!) change from year to year so I figured I'd resurrect it for a bit. Are the 10%/15% brackets still in place, or is the lowest bracket now 25%?

I'm getting ready to purchase a tractor--most likely new. Are the rules still the same, regarding filing a 179 and deducting all (or depreciating) the purchase? My wife and I are purchasing primarily this to work our timberland, but also to do all-around work at home too.

I will be working with a CPA when filing 2011 taxes, but am interested in understanding as much as I can up front to help plan and budget the purchase.

Is such a purchase deductible from state taxes as well? I'm in NC which has a relatively high sales & income tax rate, though not as high as some places.


Thanks for your help!

-Jack

 

[California]

Bump some more. Time to think about this stuff.

I just posted the following over in another deduction-related thread:
Kubota a Tax deduction?

Since it's relevant here, I'll add it to this thread also:

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I learned an important point in 2009. Two unrelated Enrolled Agents [tax professionals] told me the same thing: Sec 179 (immediate) deduction for purchased equipment can only be applied to extent of earned income. My wife and I were finally retired so had zero wage income reported on a W-2. I asked if Deferred Compensation income or investment income could be counted - no. In my case I could take Sec 179 deduction only up to the point where it brought my Schedule F, farm income, down to zero. I was no longer renting out the little cabin at the ranch so I couldn't apply some tractor cost as 'landscape maintenance' against that rental income as I had in earlier years. I still haven't researched tax law to verify this 'earned income' rule but since both professionals advised getting it wrong would result in an audit, I relied on their professional opinion and did it their way.

One last comment - don't apply common logic to your circumstances and then assume tax law will match your conclusions. Think instead that the latest tax law reflects various lobbying efforts you never heard of. That's why you need review by a tax professional who keeps up with the latest publications and tax court rulings.

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