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Welcome back to episode 179 of the Teaching Tax Flow Podcast! In this episode, we tackle Section 179 of the IRS Code Book, a key component for any small business aiming for significant tax savings. We'll break down how bonus depreciation can enhance your tax efficiency and improve your strategic planning when acquiring new equipment. This discussion is crucial for understanding business taxes and maximizing your deductions.
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"Defeating Taxes" NOW Available on Amazon
www.defeatingtaxes.com
The HUB
www.teachingtaxflow.com/hub
⸻
EPISODE SPONSOR
Strategic Associates, LLC
Roger Roundy
http://www.linkedin.com/in/roger-roundy-86887b23
⸻
🎧 Listen on your favorite podcast platform:
👉 Spotify https://bit.ly/3KdmtJL
👉 Apple Podcasts https://apple.co/3ZkyEtX
👉 Amazon https://amzn.to/4qmdqa5
👉 iHeart https://bit.ly/iheart-TTF
- (00:01) - Exploring Section 179 Tax Deduction with a Play-Doh Analogy
- (01:22) - Section 179 and Bonus Depreciation for Tax Flexibility
- (07:00) - Tax Rules, Inflation Indexing, and Santa's Bad List
- (09:12) - Understanding Section 179 Deductions for Business Assets
- (11:50) - Strategies for Reducing Tax Liability for High Earners
- (13:11) - Tax Deductions for Commercial Building Improvements
- (14:28) - Understanding Depreciation and Tax Deductions for Business Assets
- (17:17) - Exploring Tax Resources and Historical Anecdotes
- (18:59) - Understanding Financial Advice and Investment Services
Creators and Guests
What is Teaching Tax Flow: The Podcast?
Welcome to “Teaching Tax Flow: The Podcast”, the show that’s all about demystifying taxes and helping you keep more of your hard-earned income in your pocket.
Hosted by tax experts from the Teaching Tax Flow team, this unfiltered (but clean) podcast is designed to empower you with the knowledge and tools you need to confidently navigate the world of taxes. We’ll cover everything from understanding tax laws and regulations to maximizing deductions and credits.
In each episode, we’ll break down a specific tax-related topic in a clear and accessible way, providing practical tips and strategies you can use to optimize your tax situation. We’ll also answer listener questions, share the mic with amazing guests, and share real-world examples to help illustrate key concepts.
Whether you’re a freelancer, small business owner, real estate investor, or just looking to understand your taxes better, this podcast is for you. So tune in, take notes, and start building your confidence in taxes today.
Produced and hosted by Teaching Tax Flow.
www.TeachingTaxFlow.com
Hey, everybody, and welcome back to the teaching tax full podcast episode one seventy nine. So if you remember a few episodes ago, we made a promise to you, anybody that's listening or watching this, that we are gonna be as cheesy and come up with a, I guess we could say a dad joke comparison, the best we can. And we're gonna talk about section one seventy nine on episode one seventy nine. So here we are. We're getting into this thing.
John Tripolsky:And Chris my cohost here, I gotta give him credit. He came up with a great analogy for the section one seventy nine, calling it the PLATO deduction. So if anybody's as old as we are, now that I'm over 40, I can't say as young as I am, But the Play Doh writer, your kids got this stuff. It's very malleable. This stretcher turned into different shapes, whatever you want.
John Tripolsky:Chris, why don't you go ahead and explain what in the world you were thinking when you came up with that analogy, which is great, by the way.
Chris Picciurro, CPA:Well, thank you, and it's great to be back. Everybody, take one little pause. Make sure you subscribe and like to this this if you're watching it on YouTube and and if, you're listening to it because guess what? That tells us you appreciate what we're talking about in our bad jokes. Now we're not talking about Plato, the philosopher.
Chris Picciurro, CPA:Yes. We're talking about Plato. And if you're my age, you used to take that and used to put it on the cartoons or funnies in the newspaper and pull it up and you'd see it. But, yeah, section one seventy nine of the of the internal revenue code really gives business owners and real estate investors a lot of flexibility. And I always talk about section one seventy nine or the one seventy nine deduction as the cousin of bonus depreciation.
Chris Picciurro, CPA:Bonus depreciation was like, got all the news when the one big, big, beautiful bill act oh, you get a 100% bonus. It's back. It's like, you know, yay. And for one seventy nine is always been doing its thing, you know, the good child, the not the squeaky wheel, doing doing what it needs to do for the taxpayer. So here's the thing.
Chris Picciurro, CPA:$1.79 is the cousin of bonus depreciation. What we like about one section one seventy nine is that this deduction is moldable to your tax situation. Bonus depreciation, you automatically get what you have to elect out of. So it's an all or nothing decision. Section one seventy nine, you have to elect into, and you can pick the deduction for that year.
Chris Picciurro, CPA:So, John, if you bought I wanna talk about what assets qualify. But if you bought a $50,000 worth of assets and and you probably you know, let's say you were in your wood woodworking business and you bought a lathe. I don't know. I don't know if that'd be $50.
John Tripolsky:Oh, it depends.
Chris Picciurro, CPA:It depends. I'm mine. Good. We don't necessarily need to take that $50,000 deduction this year. We might say, John, it's let's take 20 this year and then the rest will spread out over the next, you know, five to seven years.
Chris Picciurro, CPA:We could do that with section one seventy nine. So it's a cousin of bonus and you elect into it. You don't elect out of it. And it really is a nice thing to have because you don't have to elect the one seventy nine deduction until you file a tax return. That's what gives a lot us a lot of flexibility as those folks, you know, business owners, real estate investors, and as tax professionals.
Chris Picciurro, CPA:Sometimes we wanna see what the profit looks like at the end of the year. And if someone's not doing the tax planning and strategy that they should be doing, first stop, go to defeatingtaxes.com and get yourself in our community. But let's say you're being a little too reactive. However, you bought some qualifying property. It's your, you always hear me say this, John.
Chris Picciurro, CPA:You get out of jail free card sometimes. Right? Hey. At least I have some bonus depreciation.
John Tripolsky:And really to me, really quick. So, obviously, section one seventy nine. So that's section one seventy nine of the IRS tax code. It's now like section one seventy nine of Teaching Tax Loves YouTube channel. So let's get that out of the way.
John Tripolsky:But then really, you know, this lends itself to a 100% supporting what we're always talking about. Right? Tax planning. So, like, this is a huge tool, I think. I shouldn't say a think.
John Tripolsky:I'm trying to say different words. I know. I believe that, you know, it's one of those things that people are saying, oh, well, I have no control over my situation. I can't do anything about it. It is what it is.
John Tripolsky:Everything's fixed. This is probably one of the best ones that goes against that, really, and it's you know, we're getting something from the IRS. It literally gives you flexibility and gives you freedom with planning in mind to control your situation. Right?
Chris Picciurro, CPA:Yeah. So, Robert, we have three laws in teaching tax flow. One of them is cash flow and tax flow are different. Meaning, if you pay cash for the a qualifying asset or if you finance all or part of it, it has no effect on the section one seventy nine deduction. A lot of times, John, people say, well, I only put down $10,000 on that $50,000 lathe.
Chris Picciurro, CPA:It doesn't matter. You should you always deduct it all upfront? That depends. But cash flow and tax flow are different. The other one, remember, tax agencies are your involuntary business partner.
Chris Picciurro, CPA:Tax laws are written to encourage and discourage certain behavior. So section one seventy nine is written to encourage small business owners and real estate investors to buy Now when I say small business owners, what we consider a small business owner is different than the IRS. IRS looks at it's anyone under about, you know, $20,000,000 worth of revenue is kind of a smaller business owner in general. So that's that's the situation. So the max so what section one seventy nine does is it allows business owners and real estate investors to deduct immediately certain acquisitions.
Chris Picciurro, CPA:With the one big beautiful bill act, it said, hey, section one seventy nine. We see you. We see you dancing around with the tax cuts and jobs act. We're gonna let you stay and keep dancing. Right?
Chris Picciurro, CPA:And so that maximum is $2.02 and a half million dollars per year. There are some phase outs. So if you're a business that purchases more than $4,000,000 of of qualifying property, you are gonna get phased out of some of that deduction. But if you look at how many businesses are in The United States, very, very few businesses purchase $4,000,000 worth of property a year. Even a, you know, a contractor, like, even if they they lay some a cement contractor or a 4 million's a lot of asset purchases.
John Tripolsky:You're probably more to, like, large scale well, not even large, but medium scale manufacturing or, like, the industrial side. But you brought up the good point. Right? I mean, in reiterating that, you know, it's it's to encourage certain behaviors. Well Yeah.
John Tripolsky:What's better to them and really everybody in some sense, if it if it's affordable, is to keep the cash flowing. Right? It does them no good sitting in somebody's account forever and ever. Although they do things to, you know, entice people to save, obviously, for future purposes.
Chris Picciurro, CPA:Right.
John Tripolsky:But this is a a great one. Right?
Chris Picciurro, CPA:And it's so it's fully phased out at about 6 and a half million dollars of the purchase. So 99% of business owners are gonna be under the threshold that they could actually take advantage of this. And the cool thing is this is now indexed for inflation. So now it's not set at these limits. There are so many things.
Chris Picciurro, CPA:You know? One of the one of the things that we're we might do this next next year Christmas, John. Spoiler alert. We might do Santa's bad list of tax rules. Meaning, they're never there's certain things that have never been indexed for inflation, like the capital loss carry forward, the student loan interest deduction.
Chris Picciurro, CPA:These things have never been indexed for inflation. So what seemed fair twenty, thirty, forty years ago, they never got adjusted. So this is indexed for inflation. So each year, the IRS will come out just like the standard mileage and say, hey. What was the inflation amount?
Chris Picciurro, CPA:If if, you know, if 2 and a half million was the limit for 2026, it might be 2,550,000 or 2,600,000, something like that. So so the point is 99% of people are gonna be able to take advantage of deduction if they're a business owner or rental property owner.
John Tripolsky:Now, those ones that haven't been indexed, I mean, that's almost as bad as the the dumb laws for some cities. Right? I think Detroit has one you can't chain chain your pet alligator to a fire hydrant or something from a who knows? But, yeah, that dude, that would be a great episode. We look at that and say, hey.
John Tripolsky:These are the things, you know, that haven't changed. And then, you know, we throw in a couple that have, which are actually you know, it's surprising, but it's good to see. Right? I'm glad to see this.
Chris Picciurro, CPA:Bad list. Like, for instance, something on you know, Santa's bad list is now married filing separately. You can't take any of many of the new deductions, like no tax on tips and no tax on overtime. So now that's on Santa's bad list, married filing separately. So, yeah, we're gonna have fun with it during but guess what?
Chris Picciurro, CPA:It is the springtime. John, it's even starting to get warmed by you. So let's talk about things that are doing well and what type of properties qualify for Section 179. So in general, it's gotta be a tangible property. It's gotta be depreciable.
Chris Picciurro, CPA:It's gotta be used at least 50% for business and it has to be placed in the service the the year you take the section one seventy nine. So, for instance, John, this is cash flow versus tax flow. A, I wanted a new F-three 50. Certain people like to have big trucks. I go to the dealership in December.
Chris Picciurro, CPA:I put down $10,000 My truck's not getting delivered till February. Right? Can you take a $10,000.01 79 deduction in December? No. You didn't have the vehicle delivered.
Chris Picciurro, CPA:You the vehicle wasn't placed into service. You get the $1.79 deduction when the vehicle goes into service regardless if you put a deposit down. So that means is that the asset has to be placed into service the year you take the deduction.
John Tripolsky:Which makes perfect sense to me whether people agree with it or not because otherwise, you'd have people doing all kinds of stuff at the last couple days of December.
Chris Picciurro, CPA:Right.
John Tripolsky:And then doing something different after the first of the year. It would become a nasty rotation. Before we jump into the other one, though, you did mention tangible. Right? So an example of this would not be, say somebody spent $3,000,000 in software for, like, a computer system.
John Tripolsky:Technically, that wouldn't
Chris Picciurro, CPA:Actually, off the shelf computer software is is eligible. Now if you develop your own software, that's a little different. We're gonna talk about software in a second, and and it might be but if you develop your own software, you might be eligible for a research and development credit. Remember, we have a podcast about credit
John Tripolsky:versus deduction. Two years ago.
Chris Picciurro, CPA:Oh, check it out. Come on.
John Tripolsky:Yeah. It's been a bit.
Chris Picciurro, CPA:So tangible personal property, what does that mean? Typically, it's gonna mean machinery and manufacturing equipment. It's gonna mean office furniture, printers and copiers, restaurant equipment, tools and specialized equipment. And what we see a lot of times is we see, let's say someone is a starting a restaurant. They have a lot of expenditures.
Chris Picciurro, CPA:Now and and and they might not want a bonus depreciate them the year the restaurant opened because they probably aren't making much money right in the beginning, and they might wanna elect out a bonus and use section one seventy nine for some of the the equipment and push some to the next year. So those are examples of the tangible personal property. Business vehicles may qualify. So heavy SUVs, pickup trucks, cargo trucks, delivery vehicles. So that's where they have a a gross vehicle rating above $6,000.
Chris Picciurro, CPA:However, have to be more than 50% business use, and we know that buying a vehicle is not a tax planning implementation because it doesn't fit into one of our buckets. Doesn't mean you shouldn't buy a vehicle. Doesn't mean you shouldn't take bonus depreciation or section one seventy nine.
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John Tripolsky:So if anybody sees a a teaching tax flow branded tank or something driving down the road, you know right away that I convinced Chris to do something stupid for the first time in his life. You know? But we, you know, it's it's over the weight limit.
Chris Picciurro, CPA:Oh, I've done a lot of stupid things, but but I'm sure that I that would be a good one to add.
John Tripolsky:Hey. Let me be your cohost probably isn't the best idea
Chris Picciurro, CPA:you've ever
John Tripolsky:had, but, you know, it's all good. It was
Chris Picciurro, CPA:a yeah. No. I think that was a stroke of genius here. So the section one seventy nine, it's a way to basically front load or accelerate your depreciation. So what else is eligible?
Chris Picciurro, CPA:Off the shelf computer software. So the com commercial software has to be available to the public. It's gotta be licensed on a nonexclusive basis and not not really modified. Right? So, yeah, so that that's gonna be you know, now we don't really see a lot of off the shelf computer software.
Chris Picciurro, CPA:Almost all of it's SaaS anyway. It's a subscription model. QIP, not OPP, John. You can't say you know me and start dancing around and going hip hop on us. Sorry, trench and naughty by nature.
Chris Picciurro, CPA:QIP, qualified improvement property. Right? So that's gonna be interior improvements to non residential buildings, meaning commercial buildings, like interior walls and lighting systems, floors, and ceilings. So that's that's where typically that would have to get written off over might be written off over a longer period of time. You could take an immediate deduction, but remember, nonresidential buildings.
Chris Picciurro, CPA:And then
John Tripolsky:So that QIP, does that apply to somebody who says leasing a space versus closing their own space? Or
Chris Picciurro, CPA:Yes. Leasing a space is per you know? Because a lot of times you have to retrofit it, and it's very expensive. Building systems that qualify. So certain improvements to commercial buildings also qualify.
Chris Picciurro, CPA:So your roof replacement, your HVAC, fire protection, alarm system, security systems, that those, you know, with a commercial building qualify for the section one seventy nine without you know, as long as you have the cost kinda allocated, you're gonna be able to take that deduction immediately. Now what doesn't qualify? So we're gonna end with the bad news. Right? Land.
Chris Picciurro, CPA:Right? Land is not depreciable. Buildings themselves don't qualify. The the improvement property does. Investment property not used in business, and then property used less than 50% for business, and then property acquired from related parties.
Chris Picciurro, CPA:We had someone in the teaching sexual community asked me about buying a vehicle from their spouse, and there are related party rules. Because think about it. If I what if I bought a personal vehicle from my my my spouse and and, you know, she charged me a lot just to get the deduction. I don't know. It wouldn't wouldn't make any sense.
John Tripolsky:No. It's a way of weeding out BS for lack of better terms.
Chris Picciurro, CPA:Correct. And as we kinda wrap up, I wanted to to to tell people, look. It's not section one seventy nine or bonus. They work together. They're cousins.
Chris Picciurro, CPA:And the cool thing is we can utilize them together to get you the best result possible and mold, back to our PLATO, the deduction we desire in that given tax year.
John Tripolsky:Perfect. And, Chris, I'm gonna ask you one question, and I'll I'll give you as much time as you need to answer this one. But for those that say they're just starting a business, they're getting into this. Right? They probably never heard of this before.
John Tripolsky:And I should have asked this a little bit earlier. But to them, right, they're thinking, hey. I have to go buy this desk, this computer, this equipment. Oh, it's just a business expense. So just as briefly as you can, maybe what would you tell them?
John Tripolsky:Right? Like, oh, it's yes. It's an expense, but what depreciation is it? Just really quickly to
Chris Picciurro, CPA:Well, so then yeah. That's so it it there's a lot of factors involved there. So a lot of things that are eligible for bonus or $1.79 are automatically deductible under something called the de minimis safe harbor election. So, John, let's say you started a business and you bought a desk that was $203,100 dollars. Technically, it's a desk and you depreciate it, but you could just elect to say this is a smaller than $2,500 expense.
Chris Picciurro, CPA:I'm going to expense it. What depreciation is, depreciation is is a way to recover the costs for assets that are purchased that have a longer lifespan. And that how long you recover that cost, which is five, seven, fifteen, twenty seven and a half, thirty years, depends on what type of asset you purchased, and the IRS gives us guidance on how long or how to depreciate the property. To get really nerdy and technical, that's an IRS publication September.
John Tripolsky:And you ended on a nerdy note, you little dork you. And that's why you know exactly what you're doing every day.
Chris Picciurro, CPA:We try over here.
John Tripolsky:Yeah. I would hate to ever really get into an argument with you. You'd probably, like, start throwing tax code references at me.
Chris Picciurro, CPA:You'd I would, but you really wouldn't know if they're right or wrong. Right? It's kinda
John Tripolsky:like It's almost like
Chris Picciurro, CPA:you live in Charleston. And, even here in Nashville area, like, people go on these, like, haunted ghost tours and and and, like, history tours, especially, I mean, the haunted ghost tour haunted tours we know are kinda silly, but the the history tour is like, oh, this lady lived here on this porch. They're like, we don't know if that's no one knows if it's great.
John Tripolsky:John Jacob took 12 steps off this front porch and turned right in 1822 at 6PM. Right? Like, they didn't have a video camera. There's no iPhones back there. But, yes, on that note, yes, you are a dork with this, but, you're a resource.
John Tripolsky:Right? Which is a great thing. So, Tuzi, you mentioned, wow. I'm I'm about to sound like a total pitchman. I'm gonna roll this into resources.
John Tripolsky:Right? Defeatingtaxes.com. Check it out. Lots of stuff there. We're adding more things to that website just so everybody knows.
John Tripolsky:So it really does become a kind of a map, if you will, of our resources. So instead it's telling you to go here and here and here, like some people get on, you know, TikTok videos and all this stuff, we're making it as easy as we can because we get it. We understand this isn't something, you know, we're not giving you recipes for dinner. This is not something you're like super excited about most likely, unless you're Chris. You're trying to avoid something and trying to keep as much as you can of something you've already worked so hard for.
John Tripolsky:Right?
Chris Picciurro, CPA:Right.
John Tripolsky:So again, we try to make it easy, try to make it compressed, understandable, and as resourceful as possible. So as always, we will see you back here again next week on the Teaching Tax Flow podcast. Have a great week.
Disclaimer:The information in this podcast is educational and general in nature. It reflects the opinions of teaching tax flow and does not take into consideration the viewer's personal circumstances. It is not intended to be a substitute for individualized financial, legal, or tax advice. Consult the appropriate qualified professional prior to making any decisions. Securities are offered and supervised through Cabin Securities Inc member, FINRA SIPC.
Disclaimer:Investment advisory services are offered and supervised through Cabin Advisors LLC, an SEC registered investment advisor. Chris Picciurro is a registered representative of Cabin Securities and an investment advisor representative with Cabin Advisors LLC, teaching Tax Flow as an independent entity and is not affiliated with Cabin Securities or Cabin Advisors.