Rustler’s Quickbooks Tips

The IRS has the neatest thing called a Section 179 deduction, that basically says that if your business qualifies you can deduct the cost of equipment in the year you bought it rather than dealing with depreciation over some span of years. And the IRS considers damn near anything equipment, furniture, computers, software, video, audio, all kinds of things. And if you bought more than the allowable deduction, you can carry forward to next year the remainder.

What you are supposed to do is to buy the equipment and use an account called something like Office Equipment (an asset account) to record the purchase and then at the end of the year you make an adjusting entry to move that value out of Office Equipment and into the 179 deduction expense account.

I took a shortcut. My accounting friends are going to cringe at this, accountants have no sense of humor sometimes <smile>. I created expense accounts that reflect the Section 179 catagories. My account list looks like this (indented names are sub accounts) :

Section 179 Deductions

A - Computer Equipment

B - Video and Audio Equipment

C - Cellphone

D - Copier, Calculator

E - Furniture

G - Tools, Machines, Equipment

K - Software

Notice the skip in lettering? That is because the IRS uses those letters when you report the category on the Section 179 form. The missing category (letters) are ones that do not apply to my business so why list them in my chart of accounts?

Your tax guy can give you the whole list, or if you have a copy of TurboTax for Business they are contained in there.

So when I buy software (as an example) I record the expense directly to the Section 179 deduction sub account “K - Software” and when I do my taxes I print out the Section 179 account quick report so I can transfer the numbers to the correct form for IRS reporting.

So when all is said and done you have expensed the item off the books. If it is a machine, lets say, and later on you sell the machine.  The proceeds from the sale are income.  There is no cost to offset the income because you expensed them, wrote it off, however you want to put it.