Question

griper jones owns a pool construction business. his current year earnings from self-employment are $65,000 before any code section 179 expense deduction. he purchased a new excavator in the current tax year, which cost $150,000. griper would like to know whether he should take the code section 179 expense or depreciate the excavator over its useful life of 10 years using a 150 declining balance. explain your reasoning.

Answer 1

Griper Jones must decide between taking a Section 179 deduction on his new excavator, which allows immediate expensing of the cost up to the limit of his income, or depreciate it using the 150% declining balance method over 10 years. This decision depends on his need for a tax break now versus over time and should be made with consideration to current tax laws; consulting a tax professional is advised.

Step-by-step explanation:

Griper Jones is contemplating whether to take the code section 179 expense deduction or depreciate the excavator over its useful life. If Griper opts for the Section 179 deduction, he could potentially deduct the entire cost of the excavator in the year of purchase, up to the income from his business, which in his case is $65,000. However, depreciating the excavator using the 150% declining balance method would spread the expense over the asset's useful life but provide a smaller deduction in the first year and subsequent years.

Considering cash flow and tax savings strategy is crucial. If Griper needs to maximize his deductions in the current year to lower his taxable income, taking the Section 179 deduction would be beneficial. However, if he wishes to spread the deductions to even out the tax benefits or because the Section 179 deduction is limited to his business income, then depreciating the asset would be the more appropriate choice.

It is also important to note that tax laws and limits are subject to change and can impact the decision. Therefore, consulting with a tax professional for personalized advice is highly recommended.