Re: Single Person Sole Proprietorship Catch-22?


"C&RLandscaping" <candrl2006@xxxxxxxxxxxxxxxx> wrote
When can a new, single person "sole-proprietorship" business start
being able to depreciate a dedicated business vehicle and business
equipment? The IRS rules say that it's the date you put the vehicles
or equipment into service... not the date you bought them... implying
that folks typically buy such things hours, days, or even weeks before
actually taking delivery and placing them "in service." Okay... fine
so far. I've already been bitten hard by that one on one mid-December
purchase that didn't arrive until January 2007. Very poor tax
planning on my part.

But what if that same person wants to deduct some or all of those big
2006 purchases all in the first year of business via Section 179
instead of depreciating them slowly over time? It seems then that a
small "gap" between purchase date and placed into service date
suddenly implies that the vehicle and/or equipment was "converted from
personal use" and therefore ineligible for Section 179 tax
treatment... even if all you did was drive the vehicle home, drive it
around the block a couple times, fill it with gas and park it until
your first job that required it... or maybe you used the equipment
once or twice solely to see "if" and "how" it functioned before
hauling it off to the next client.




I certainly don't see it that way, and I've never heard of the IRS pressing
the issue of "a spin around the block" voiding the Section 179 election on a
vehicle purchased ~for~ the business.

There was a guy in these groups earlier, who having bought a truck to plaw
snow, was waiting on the snow (late winter in the NE). I doubt the IRS
would claim that the delay in using the vehicle to plow snow would prohibit
any 179 election. The truck was ~available~ to be used, and therefore would
otherwise qualify for Section 179.




This appears to be a major "Catch-22" that could be exploited by the
IRS at almost any time, effectively negating (by strictest
interpretation) use of Section 179 for almost any new sole
proprietorship. How (in terms of documentation and/or procedures)
does one avoid that little potential "Catch-22" gotcha from the IRS?
Or is the reality that Section 179 is effectively unavailable to a
single person sole proprietorship due to the risk of the IRS playing
the "conversion from personal use" card for virtually any purchase?



They'll look at the timing of the purchase and the use of the asset. With
exceptions for timing that spans two tax years, the rest is moot in most
cases. Even when equipment is purchased for a new start-up business, some
times months in advance of an actual start date, Section 179 is available on
the qualifying assets.



What they'll frown on is the computer bought in 2005, that was placed in
service in a new business in 2007. There's most likely personal use or
other disqualifications for Section 179. More so on assets that lend
themselves to personal use. Computers, cell phones, digital cameras, GPS
devices, TV's, etc.






--
Paul Thomas, CPA
paulthomascpapc@xxxxxxxxxxxxx













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