Re: Single Person Sole Proprietorship Catch-22?

On Thu, 29 Mar 2007 18:44:07 -0400, "Paul Thomas, CPA"
<paulthomascpapc@xxxxxxxxxxxxx> wrote:

When did you buy it, and when did you first use it for business, or the
earlier of when it was "first available for use" for buisness purposes.
Case in point, a business that relies heavily on trucks (landscaping) who
buys a truck in December, takes delivery in December, sends the truck to get
the corporate logos and lettering put on the sides, back, hood, etc. Also
sends it to be outfitted with the specific equipment needed for it's
intended purpose (it needs a spray rig for chemical application). It gets
returned to the company in January. It then goes out with a crew.

This vehicle isn't going to be elgible for Section 179 if the auditor is
hard-assed.

Now, take the same information, but change the dates to June and July. Who
cares. It's elgible for Section 179.

The IRS will look at the fact pattern to see if there is something they can
pull out of Section 179 based on timing. And if you bought the vehicle in
June and don't have any business activity till April, you're SOL.

I think I am confusing you Paul. Once again, the tax year changeover
thing is not an issue in this case. It- is- an issue for me on
another piece of equipment I bought in December, but not on my three
or four biggest upfront purchases. Those are the ones I am most
concerned about and those were all purchased and placed in service
well within 2006. It is not a tax year issue for me. It is the
"converted from personal use" test I fear will squash my Section 179
deductions in an audit. I see no real potential for the IRS claiming
"converted from personal use" in the example you gave above.

I still don't see that as a complete stumbling block for Section 179
deductions, although it's on you to prove that the vehicle is business
owned. For a sole-proprietor it's more moot than in a corporate structure I
suppose.

Bingo! That's one of the key points. If and when the truck was
bought by or turned over to a separate corporate entity, that would
pretty much determine whether or not there was any "conversion from
personal use" issue to worry about. The problem is that I am a
one-person sole proprietor wherein I am the business and the business
is me. Suddenly the issue of "conversion from personal use" becomes a
very scary gray area which an IRS auditor could easily attack. Hence
my desire to get my ducks in order or forego the Section 179 option as
too open to audit and reversal.

The insurance status thing is an interesting point I hadn't thought of
before. My guess is that an auditor WOULD try to exploit that
apparent slip I made. The burden would fall on me to show that I was
fully in compliance with state law on business use with the route I
took. All I can say at this point is that I hope my insurance agent
didn't try to save me a few hundred bucks in premiums only to let me
loose thousands in the form of a disqualification from using Section
179. I have plenty of other evidence to show intent of business use
and actual business use, but that insurance point could be a real
gotcha.

The truck "fits" your business and won't be questioned as much as the Mazda
Miata or the Mini Cooper that you're trying to deduct off the books.

The truck is a rather plain and nasty landscapers truck. No big
chrome wheels, no leather seats, no CD players or fancy radio. It
drinks gasoline like a fish. Just a serious, no-frills, heavy-duty
work truck that can pull around my landscape trailer or my skidsteer.
Period.

Don P.
.

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