Re: Single Person Sole Proprietorship Catch-22?


"C&RLandscaping" <candrl2006@xxxxxxxxxxxxxxxx> wrote
It is the "converted from personal use" test I fear will squash
my Section 179 deductions in an audit.



Why? What valid issues do you have concerns about?





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.



Only if the auditor is a hard-ass. You're saving money by insuring it that
way. That should mean more taxable profits. The issue most concerning is
if the insurer said the policy wouldn't pay out because you don't have the
proper coverage (individual policy instead of commercial policy). For your
landscaping vehicles and equipment, I'd only recommend commercial policies
because of the potential for claims and the types of those claims.

Different story for the businessman driving the Mercedes to meet with
clients.

In any event, The IRS isn't all that concerned about how the insurance is
obtained. How the vehicle is titled is another more important matter
though. As a sole-proprietor like you are, your name should suffice, but
tacking on the business name (if you have one) to the sales documents at
least would be helpful.





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.



So why do you think the Section 179 issue would come into play?


If you already have the business in operation, and you buy a truck for that
business, no one is going to question anything about it with regards to
Section 179.




--
Paul Thomas, CPA
paulthomascpapc@xxxxxxxxxxxxx


.

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