Question

Comment on how a business owner can plan asset acquisitions to fully utilize the Section 179 deduction.

Answer 1

A business owner can plan asset acquisition in the following manner in order to utilize the sec 179 deduction fully:

1)Sec 179 deduction can be used to deduct more expensive items in the 1st year. So if the plan is to acquire expensive items then they should go in for the Sec 179 deduction as the normal depreciation is done by deducting the cost over several years, depending on the class life of the property. Sec 179 allows for deduction up to the statutory limit for the applicable tax year, but only if the total investment in depreciable property is less than the specified investment threshold , failing which the allowable §179 deduction is reduced dollar for dollar, by the amount that the total investment exceeds the investment threshold, thus doing away with the sec179 deduction completely when the total investment reaches the sec179 phaseout limit.

2) At the time of planning the asset acquisition the business owner can plan the acquisition of a used asset as sec179 deduction can also be used to deduct the purchase of used items if the purchase for those items is made in cash.

3)Though in order to reduce taxes the purchases can be made at the end of the year , the only thing that needs to be considered at the time of planning an asset acquisition is that Section 179 expensing can be a very powerful tax-planning tool for small- and medium-sized businesses acquiring capital assets. Though it does not change the amount of depreciation you can take over the life of capital purchase, it can change the timing by allowing the business to deduct the purchase in the first year that the business places these assets in service in the year in which the deduction under sec 179 is claimed.

4) Section 179 doesn’t apply to property acquired for use in a rental property if it’s not the trade or business of the businessman or organization rather an investment.