Been reading about the Section 179 tax deduction. In all of the examples, it talks about buying equipment for a business and writing it off for the tax year in which it was purchased. I understand that for a business that’s already running, but how does this work for a business that’s not “in business” yet? Can the equipment be purchased during one tax year and written off for the next one?
Here’s the example I’m thinking of. The business is in the planning stages, but you come across a deal on some equipment. It isn’t needed it yet, but it will be when the business is up and running. It gets purchased in 2020, but there is no tax year for the business in 2020. Operations don’t start until 2021. Can that the Section 179 deduction still be used on the equipment for the 2021 tax year?
I know I can talk to a tax professional about this, but thought I’d pose the question here for anyone who might know the answer. Thanks.
I don’t know the answer to your question but why not just file your LLC now and then you’re an actual business. I would think that would take care of it.
@Infinity Alex always seems to know his stuff when comes to tax type questions. Maybe he can help.
I thought it depended on the equipment amounts, that certain amounts have to be depreciated over years. I would have to check again, not sure, but I thought it was 2500.
In my limited understading I thought my PW was depreciated over 5 years and just about everything else is same year. I don’t have a vehicle or trailer to write off.
I am not a tax professional, but from my limited understanding and memory, I believe sec179 deductions are based upon when the equipment is put into service, not when it was actually purchased.
I believe the rule is meant to prevent people from buying a huge piece of whatever at the end of the year, just for the deduction, even though they’re not yet using it in their business. But in your case, it would work in your favor.
Definitely talk to your CPA, though.
@infinity is right. I spoke with my CPA back in November 2019 when I bought everything for my build. Since I wouldn’t utilize the equipment to generate income until 2020, I’m allowed to claim it all on this year’s taxes if I choose to do so. I’m still on the fence about whether I’ll depreciate or take it all, it depends on how the rest of the season goes. BTW the limit on equipment deductions for section 179 is $1mm now so you should be good.
I am not a tax professional and my experience should only be taken as anecdotal. You should talk to a CPA, $100 for an hour of great advice is well worth it
Uh, yeah, I think that’ll cover it.
My wife is an accountant and she is unaware of anything allowing you to write off a purchase from this year on next year’s taxes. She said you can do it if you are depreciating it over several years but not a complete right off. Seems to me accountants are like Doctors. Just call another one if you don’t like their opinion.
As I understand it from the IRS website, it’s specifically for first-year businesses. You should also look at Bonus Depreciation, which allows first-year businesses to deduct the total cost of equipment instead of depreciating it (if that’s what you want)
This link’s first sentence explains using 179 in the year the equipment goes into service, directly from the IRS: