Official Luthiers Forum!

I am really glad we have someone that understands tax law, I am just a computer software engineer and therefore tax law is too complicated for me .

I also make me appreciate having a good tax accountant (and tax lawyer) that understands all of the ins and outs of these kinds of things. I never mind giving them my money because they also sign my returns, which makes me feel much better...

Enough with the mind numbing talk...I just got in some euro spruce billets to resaw...back to Luthier play

Another CPA here - I'm pretty sure I agree with what Dave said (makes it easier than having an original response, doesn't it?). A good rule of thumb in determining your business expenses is "would my mother think this is right? If the Wall Street Journal published an article about me and this deduction, would I be OK with it?" I know anecdotally about people who will try to deduct the cost of a vacation because "I might want to start up a business there." My mom would say that's a crock.

Another thing to keep in mind - you may be required to capitalize costs as startup and organizational costs under Sec. 195 and/or Sec. 248.

Dave, here's the exact link with the tax help where I got the examples that said you can write it off against other income -- tax advice

I still see your point about deductions, but why doesn't the law say you can deduct up to the amount of "business income" as opposed to saying "earned income"?

I'm also leary because TurboTax is allowing me to deduct the section 179 against regular income, even though I have almost no business income this year. You would think Turbotax would limit the deduction to whatever business income you have reported.

John

Hank,

I like and use TurboTax also, but be careful. TurboTax allowed me to take the full section 179 deduction and I have no business income this year, only regular income from my other job. Since TurboTax is allowing me to take the full deduction, I am asking questions to a CPA friend of mine at work before I file.

Cheers!

John

Oh boy! First, JOHN B...thanks for the back up...I feel better...for a while there I thought maybe I missed a new change in the code
John E, I went to yet another authoritative source ( notice I am not naming these sources...only because I don't want to give them free advertising) for tax professionals and came up with the exact same results. So I am 99.99% sure of my position. I think if we go back and look at the intention of the code section itself you get some insight. 179 was meant to be an accelerated form of depreciation that would help motivate businesses to acquire new equipment. It was never meant to be a way to create loss that could be deducted from otherwise taxable income. By accelerating the depreciation expense many profitable businesses could justify the expense of buying new equipment since they would get a nice deduction off the business income. If it were deductible against all earned income by the tax payor why would the code specifically state that it could not create a loss for the business? I think if the intent of congress was that way they would have specifically stated that the loss created could be used to offset all income of the taxpayer. There is nothing that says that...it is quite the contrary...that loss cannot be created with 179.

I could go on and on but remember this...especially when you use something like "turbo tax". Look it has it's place but on complicated issues I would never trust that it is programmed to "do the right thing". It may just be too complicated a process with too many variables to function properly...I don't know, so I can't answer to why TT is or isn't doing something.
I'll take a thinking human any day for these type decisions. Remember too that if you file a return and it is wrong...and the IRS doesn't contact you, that doesn't mean it's right (or o.k.). It just means your return hasn't been selected for audit. It hasn't passed any other litness test other than it's lines added and subtracted properly. So the people who tell you "My guy has done it for six years that way and I have have never been contacted by the IRS" means nothing other than they haven't caught him YET. If you are going to make an error I choose to err on the conservative side. Let me take a look at your link and I'll get back to you!

_________________
Dave Bland

remember...

"If it doesn't play in tune...it's just pretty wood"

John,
just looked at your link...John...John...John...I feel so good now....yeaowww! Bankrate.com -- last update 11/2004!!! Now I know I haven't missed anything. John, the site you went to was NOT an IRS site. What the author was doing was re-iterating what he or she had read or heard and was lumping many things into that one paragraph the contained the words "wages". He/She should have expanded on that part and explained that wages meant wages of an employee of the employer are considered when calculating the income limitation. IN OTHER WORDS...as I said if your wife worked for your luthiery business and you paid her a wage...then you could include her wages when calculating the income limitation because her wages would be INCOME FROM AN ACTIVE TRADE OR BUSINESS. I will give you an IRS REG verbatim to read...
Employees are considered to be engaged in the active conduct of trade or business of their employment. Thus, wages, salaries, tips, and other compensation (not reduced by unreimbursed employee business expenses)derived by a taxpayer as an employee are included in the taxpayer's taxable income. REG sect 1.179-2(c)(6)(iv).

If the person who wrote that article you linked me to goes on to state anything different he/she is WRONG! That happens once in a while. Tax people write articles and some parts are wrong.

I'm done John...on to the next heart attack please. Dave-SKG38394.9914351852

_________________
Dave Bland

remember...

"If it doesn't play in tune...it's just pretty wood"

Hmmm, interesting. Mine actually came up with the warning message that my 3 Sect 179 items (for 2004) could not be used since I was already showing a loss for the year (in the business). It then said that these items would be carried over until next year (or whenever I showed a profit) and then could be applied to the extent of the profit available to offset. That's when I removed them from the 2004 Sect. 179 consideration and put them into the existing Depreciation schedule, where they gave me $78 in additional 2004 depreciation.
All this occurred even though my wife and I have other (positive) income from retirements, IRA's, her part-time work, rental income and investments.   So...in my case the Sect 179 seemed to be directly related to the Business Activity only and not applicable to Other Income.
Sure glad TurboTax guarantees their program from errors and that they will stand behind any tax challenge due to their mistake. Question is...How FAR behind will they stand!

Hank,
It seems that the program IS following the rules for you. One thing to remember about Turbo Tax's guarantee it's worth the paper it's written on. AND they will never pay the tax interest and penalties due unless you can prove the program made an error. They will assign you a rep if you wind up with an audit but he's only going to stand by the proper use of the program. Not any over ride or "fudging". I would also be willing to bet getting in touch with the rep is a lot like trying to get thru to microsoft( or any other corp. giant) for support...press one for this then press five for that, two if you know someone else who's called, after you enter as many product codes as there are numbers, but of coursr they are the wrong numbers, then when you finally get some one they transfer you to someone else, then that person asks you for all the numbers again, then they tell you that they can't help you but... here's another number to call...start over again

_________________
Dave Bland

remember...

"If it doesn't play in tune...it's just pretty wood"

Like I said....How FAR behind you will Turbo Tax stand?!    Probably far enough so you won't hit them when you fall. Anyway, I'll just take the standard Depreciation Schedule...doubt that can be challenged since it's not quite so esoteric as the Sect 179 rules.

Wise move Hank!

_________________
Dave Bland

remember...

"If it doesn't play in tune...it's just pretty wood"

[QUOTE=Tim McKnight] Dave:

Make sure you mark the area that the surgeon is going to operate on with a BIG RED X. My son went in for an operation on his eye and the doctor operated on the WRONG eye. This is the kind of stuff you read about in the newspaper and don't ever think it could happen to you. [/QUOTE]


My brother is a malpractice defense attorney, and I could tell you stories my friend. I think JJ is absolutely right. Ask lots of questions and watch those healthcare workers like a hawk...

_________________
Brock Poling
Columbus, Ohio
http://www.polingguitars.com