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Ask The Experts: Section 179 Depreciation

Monday, May 07, 2012

Q: Can you take Section 179 depreciation on used equipment? Where is this deduction explained in the IRS rules? I’ve been struggling through Publication 946 and can’t find any requirement that the equipment has to be new to qualify for the deduction.

A:
 The equipment does not have to be new to qualify for the Section 179 deduction nor for accelerated depreciation options. The equipment can be used. The only requirement for qualification is that the equipment has been acquired by purchase.

Learn more about this in IRS Publication 946: How To Depreciate Property on Page 18 under “What Property Does Not Qualify?”

Basically, to qualify, you cannot contribute the property to the business, have someone else contribute the property to the business or get the equipment from a related property. However, if you bought a used commercial truck that would otherwise qualify for one of these accelerated depreciation options, the fact that it is used would not preclude the deduction.


Q: How do I handle the new 1099-K reporting requirement if the credit card money my business collects isn't actually income for us, but is income for my clients? My business collects credit card payments on behalf of my clients.

We then put the funds in a liability account that we distribute to the client at a specific date or on demand. When we distribute the funds to the client, we deduct our small service fee from that amount and give them the balance. Thus, for our 2011 taxes, we are not reporting the total credit card funds as income because only a small portion of those funds is our actual income. How do 
I handle the 1099-K forms?

A: 
The good news is that the IRS will not be doing anything with the 1099-K reporting for 2011.

You may have noticed that there is a line included on the 2011 Schedule C for credit card receipts, but that the form actually says, “For 2011, enter -0-”. There is still debate about this issue, and the IRS doesn't know what they are going to do with the information or the reporting requirements.

At the very worst, you will only need to include the total collected and then show the amounts paid to others as well as indicate that your total taxable income is the net of the two items. Again, this is one area that is being considered, and the IRS is expected to clarify the rules.

As always, you certainly should maintain adequate documentation and support for the information that is included on your tax return and, in this case, the information that is not included on your tax return. 


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