Discussion:Section 179 Expense
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Discussion Forum Index --> Consumer Questions --> Section 179 Expense
| 22 November 2005 | |
| On my LLC's Balance Sheet, are section 179 expenses listed as depreciation in the following years reconcilliation? Since I file as a sole proprietor, I know I am not required to keep track of this, but I used to have a Sub S Corporation, and am simply used to doing this.
In other words, If I place $10,000 of equipment into service during a year, and claim the 179 expense on my return (assuming the profits are at least $10,000), how, where and when do I record this on my balance sheet for the following year? | |
| 22 November 2005 | |
| Make a General Journal entry to Equipment for $ 10,000. Book the offsetting entry to Accumulated Depreciation, Equipment for $ 10,000. This entry records the asset and corresponding accumulated depreciation on the Balance Sheet in the Fized Assets section. Because you wrote off the equipment under Code Section 179, the net effect on the Balance Sheet is an asset with a zero basis. Make this General Journal entry as of the placed in service date for the equipment. This asset will continue to reside on the Balance Sheet until the equipment is sold or disposed of. | |
| 22 November 2005 | |
| Do I make the accumulated depriciation entry prior to, or after figuring out my SE taxes? This will obviously have a big impact on how much I pay.
Based on your previous answer, I'm guessing that it is prior to, but please correct me if I am wrong. Also, if I wind up selling the assets, I'm then working with a cost (basis) of zero, at which time I would pay the appropriate taxes on gains, right? Thanks for your help. | |
| 22 November 2005 | |
| The accumulated depreciation entry can be made at any time during the year the asset is purchased; preferably this is the date it was placed into service. This entry has no effect whatsoever on your income tax return since you are filing a Schedule C. Just take the Section 179 expense deduction at the top of Form 4562 and the self-employment profit will be reduced accordingly as will your SE tax on Schedule SE.
Yes, when you sell the asset, you pay tax on the full amount of the sales price since your basis is zero. | |
| 22 November 2005 | |
| This is correct. The accumulated depreciation entry that you are referring too is merely a balance sheet entry. If you are keeping a general ledger for you single member LLC then your entries would look like this (entries assume cash was paid for equipment):
Entry #1 - To record purchase of equipment Debit Equipment $10,000 Credit Cash $10,000 Entry #2 - To record Section 179 expense (assumes books are kept on a tax basis and not GAAP basis) Debit Deprecition Exp - Equip Sec 179 $10,000 Credit Accumulated Depreciation $10,000 The $10,000 of depreciation expense should be shown as depreciation expense on Schedule C of the tax year that the equipment is placed in service, and used to determine your schedule C profit or (loss) which would then flow through to your Schedule SE. As BCG CPA noted, the accumulated depreciation does not effect your profit or loss, it is the depreciation expense that directly effects your profit or loss. | |
| 14 April 2007 | |
| I have a client that purchased an existing business. However, the way we set it up was my client set up a new S-Corp and puchased all the Assets of the old business (it was purchased from an unrelated party). About 40% of what my client paid was for actual tangible property and about 60% was for the goodwill of the business. Do these tangible assets qualify for the Section 179 expense deduction? Publication 946 states that you must keep records that show the date, cost, etc. of each item purchased that you intend to expense under Sec. 179. However, since my client received a lot of tangible personal property that was "lumped in" the purchase of the business there won't be any record of each individual item being purchased, other than the purchase date of the business. The price paid for each individual item would all be estimated.
Any thoughts on how to handle this? Thanks! Tim | |
| 14 April 2007 | |
| You should do a form to show the allocation of purchase price - which will match what the seller reported. I think it is 8594 or 8694 or something - asset aquisition statement, you may have to look it up. | |
