This deduction is 179 expensing and the part that is so empowering is specially laid out in CFR 1.179-1(b)
(b) Cost subject to expense. The expense deduction under section 179 is allowed for the entire cost or a portion of the cost of one or more items of section 179 property. This expense deduction is subject to the limitations of section 179(b) and § 1.179-2. The taxpayer may select the properties that are subject to the election as well as the portion of each property's cost to expense.
EITC is increased and then decreased based on earned income. There is an optional amount based off of income.
Fraud has often occurred where taxpayers (or their practitioners) increased income (or decreased it) to increase EITC and get into these "optimal" ranges. I will leave the particulars of the current year amounts but know that it acts as a bell curve.
What I would like to go over is common pitfalls of this strategy.
1) A legitimate Trade or Business must be had.
2) Property eligible for 179 expensing
3) Property that could otherwise fall under the tangible property regs and be expensed.
4) Future year considerations.
a) Having EITC this year may not be worth it if we we suspect much higher income in future years.
b) Asset class of assets we choose to take 179 on and ones we don't. If we have a truck and a trailer. The trailer is 5 year property while the over the road truck is 3 year property. We should consult with the client with future planning in mind.
Considering all these factors, one can delay tax and have refundable tax credits.
But remember, where the IRS giveth, it soon taketh away. Not considering the increase in future year income and not making the necessary capital expenses, will undoubtably hurt the long run for the taxpayer.
Best of wishes this tax season.
