Section 179 Deduction and Sleazy Closing Techniques

Yesterday a client called. Another vendor had called him to say that he needed to make a decision quickly because if he made the purchase before the end of the year, he could use Section 179 to save enough tax money to make the payments for 2007. He wanted to know if he should hurry up and buy the software we were talking to him about to take advantage of this. And was it available for our software, too?
Right. I hear this one every year. In fact, our suppliers call and encourage us to use this one. And it makes me want to puke!
And, yeah, Congress and the IRS makes rules that only work for one product. That’s what they made bribery for… [just kidding here…sortof]
Before I say [ok, write] anything, let me say [write] that I was a CPA in a former lifetime, but I haven’t practiced for years. I keep up with these things in general…so for anything you decide to do, check with a CPA or tax advisor that knows your specific situation.
In the first place, assuming that you can save taxes from Section 179 is a bad assumption without knowing a good bit about the company. For example, there is an absolute limit on the amount of deduction you can take per year. If the company just bought two 18-wheelers, they are probably using the entire deduction.
Of course, by the time they figure out that they can’t deduct the extra assets purchased, they are in the next year, and it’s the CPAs fault. After all, the salesperson TOLD them to check with their CPA before making a decision. Nope, no liability there.
There’s also a limit on the deduction equal to profit. That is, you can’t deduct more than your profit. If you’re a typical small business, the owner may be taking the profit as a salary and getting a W-2. Unless the owner can buy the assets (and take the liability) personally [CONSULT YOUR CPA], there’s no profit to take the Section 179 deduction against.
And finally, the Section 179 deduction has been available EVERY YEAR since I entered public accounting practice 20+ years ago. The limits have changed (gone up). In some years there has been investment tax credit (that goes directly against tax owed). But there has been a Section 179 available EVERY YEAR for the last 20 years. YOU PROBABLY WON’T LOSE IT BY WAITING A YEAR [CONSULT YOUR TAX ADVISOR].
Sleazy…says me.
So, here’s my advice…if someone uses this on you as a closing technique, ask them if you can just take it next year. While they’re thinking that over…RUN…
After all, the Democrats are in control and the tax rates may go up. You could save more by NOT buying the asset this year.
My $0.02.