Instructor Blog - Credit College - Taxes

Q: May business owners buy fixed assets in the end-of-year month December and still get 100% deduction?

A: Yes. A business owner may include the full amount of a qualified asset purchased by his or her company in the Section 179 computations, even if the business purchased the asset on December 31.

Note that the business itself may take the full amount of depreciation for the year under the depreciation scheme it chose in the year of purchase. Or it may attempt to match the depreciation stream with the life of the asset. For example, if a company purchased a fixed asset on October 1, it could take a full year's depreciation or, if it chose to do so, take only 25% of the allowable full year's depreciation expense. It had the asset only three months; therefore it used up only 1/4 of the first year depreciation.

Q: For a Subchapter S corporation, Partnerships, and LLCs is the owner payout rate affected by the Section 179 Deduction?

A: No. It is not impacted by the Section 179 Deduction since the sum of distributions and loans to owners are measured against accrual net income. Accrual net income for any business organization is not impacted by the Section 179 Deduction.

Q: How does the Section 179 Deduction impact operating cash flow?

A: It has no impact on operating cash flow since operating cash flow should be based on accrual financial statements which are not impacted by the Section 179 Deduction. Even with tax returns, it has no impact since, as a non-cash charge for Subchapter C corporations and Sole Proprietorships, it is removed in computing operating cash flow. Further, it does not appear on the tax return income statements – Schedules 112OS and Schedule 1065 – and therefore is not an issue in computing operating cash flow for Subchapter S corporations, partnerships, and LLCs.

Q: Some of my contractor customers have benefited greatly from the Section 179 Deduction. Did they sunset in 2018 or were they rolled over in 2019?

A: No. They don't sunset. Presumably the current levels and definitions of qualified assets are “permanent” according to Congress.