Many people think the Section 179 deduction is some mysteriously complicated tax loophole, but I am here to tell you otherwise. 

Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or even financed during the tax year.  This means if you buy (or Lease) qualifying equipment or software, you can deduct the Full Price from your gross income.  It’s an incentive created by the U.S. Government to encourage businesses to buy equipment and invest in themselves.
 
What are the benefits??
Normally, when your business purchases certain items with useful lives of greater than one, your business would deduct a portion of the asset each year, also known as depreciation.  For example, if ABC Company spends $50,000 on a new delivery truck and the expected useful life is 5 years, the business would write off $10,000 per year. Under Section 179, the small business would be able to write off the entire equipment purchase in the year they made the purchase (this was only an example). 

For 2016, qualifying purchases up to $500,000 can be written off.
 
Limitations
Section 179 does come with limits, for 2016 the total amount written off is capped at $500,000 and begins to phase out on a dollar-for-dollar basis after $2,000,000 is spent by a given business.  These limitations indicate that this is truly a benefit aimed at small and medium-sized businesses. 
 
Do you Qualify?
All businesses that purchase and/or lease less than $2,000,000 in new or used business equipment during 2016 should qualify for the Section 179 Deduction.  In order to qualify all qualifying equipment and software must be purchased and placed into service between January 1, 2016 and December 31, 2016.  Below is a list of qualify equipment:

• Equipment (machines, etc) purchased for business use
• Tangible personal property used in business
• Business Vehicles with a gross vehicle weight in excess 6,000 lbs (additional restrictions apply on lighter vehicles)
• Computers
• Off-the-Shelf Software
• Office Furniture
• Office Equipment
• Partial Business Use Equipment

 
Time is Running Out – Act Now
The IRS code can change each year without notice, especially during and after election periods. 
 
DISCLAIMER:  Before you go out and purchase equipment and/or software, please consult your tax professional or contact us to make sure your purchase will meet the Section 179 Deduction guidelines.

The IRS scrutinizes the business mileage deduction because many taxpayers abuse it. The lack of an adequate record is the most common reason people lose this deduction when they’re audited by the IRS. Here are three real life examples of the Tax Court denying people this deduction because their mileage log didn’t meet the requirements.
The business mileage deduction can be a huge boost at tax time, but the mileage log that you keep must be accurate and follow certain requirements to satisfy the Tax Court.
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Waiting Until Tax Time to Make Up A Mileage Log
A good example is Jim Chapin, a California real estate broker, who used his Toyota Sequoia SUV for his real estate business. He figured that he drove a total of 11,135 miles for business one recent year and deducted $5,309 for car expenses. The IRS audited him and disallowed the entire deduction, and also added on a 20% negligence penalty. Chapin appealed to the Tax Court and lost.
Chapin did not keep a detailed mileage log of his drives each day, week, or month. He instead created a handwritten mileage log when he learned the IRS was auditing him. He also created an itemized list of his expenses for fuel, insurance, parts, registration, and repairs. However, neither list indicated any business purpose for the trips, nor reported the mileage traveled or the amount of each trip expense. The Tax Court found that Chapin’s records weren’t sufficient and denied his entire $5,309 deduction. (Chapin v. Comm’r, T.C. Summ. Op. 2014-31.)

Not Keeping The Right Information In Mileage Log
David Garza, an outside sales rep for a cable company who used his pick-up trick to visit customers, did a better job than Jim Chapin of creating his mileage log. He kept records in a calendar planner book. Throughout the year, he usually recorded his truck’s odometer readings at the start and end of each month, with some months including additional readings. Besides the odometer readings, the calendar planner had some personal notes, but provided no other information related to vehicle expenses. Garza did not record any of his personal travel in the calendar.

Garza claimed that he drove over 40,000 miles for business in 2010, resulting in a $20,085 deduction. The IRS and Tax Court denied his entire deduction. Because Garza did not record the amount, the time, or the business purpose of each business use of his truck, his calendar was not a reliable substantiation for his claimed mileage expenses. (Garza v. Comm’r., T.C. Memo. 2014-121.)

Too Many Errors in The Mileage Log

Even a mileage logbook that on its face looks pretty good may not pass IRS muster. A good case in point are Mr. and Mrs. Moore, who operated a real estate brokerage business in Texas. They each kept a mileage log consisting of 12 pages, one page for each month of the year. Each page contained entries for each day of the month, including odometer readings, miles driven (sometimes designated as “commuting” and sometimes as “business”), and the purpose for the trips. The Moore’s each typically drove over 100 miles per day for their business and claimed a total $31,840 mileage deduction for the year in question.

Unfortunately, the IRS and Tax Court denied their deduction. The Court said that the logbooks were not reliable because they contained too many errors and questionable entries- for example, they did not contain the name of a single person the Moores claimed to have visited for their business. Instead, the business purpose of their driving was stated in general terms, such as “OPEN–Review Task Log–Close Office” or “OPEN–Review Contract–Close,” or “Open–Update Website–Close.” (Moore v. Comm’r, TC Summ. Op. 2012-16.)

How to Keep a Proper IRS-Friendly Mileage Log

If you drive your car for business, you don’t want to end up like the taxpayers in these cases. Fortunately, it’s easy to avoid their sad fate. All you have to do is keep minimally adequate records. According to the IRS, you must keep a record of:

• your mileage
• the dates of your business trips
• the places you drove for business, and
• the business purpose for your trips.

The IRS also wants to know the total number of miles you drove during the year for business, commuting, and personal driving other than commuting.

By far the best way to prove to the IRS how much you drove for business is to keep contemporaneous records. “Contemporaneous” means your records are created each day you drive for business, or soon thereafter.

To keep track of your driving, you can use either a paper mileage logbook that you keep in your car or a mile tracking app like MileIQ that uses gps tracking to automatically calculate your mileage for each trip.

Remember, you are not allowed to make estimates of your mileage. If you don’t have exact, reliable records, the IRS and Tax Court will disallow your entire mileage deduction, even if it is clear that you did in fact drive for business during the year.

Go to the Google Play Store or the Apple Store to download MileIQ or a similar app like it.  What app or process works the best for you??? Let us know in the comments sections below.
(blog post from mileiq.com)

(Obtained Clientline)
Individual and business taxpayers can benefit from a variety of federal tax breaks that were extended or made permanent by the Protecting America from Tax Hikes (PATH) Act and the Consolidated Appropriations Act, 2016. Here are selected highlights.

State and local sales tax deduction. The law gives individuals who itemize their deductions the option of deducting state and local sales taxes instead of state and local income taxes. Taxpayers who elect to do so may deduct the actual amount of sales taxes paid during the year or a preset amount from an IRS table. This provision has been made permanent.

Nontaxable IRA transfers to charities. Taxpayers age 70½ or older who directly transfer up to $100,000 annually from their individual retirement accounts (IRAs) to qualifying charities can exclude these contributions from gross income. If all qualifications are met, these contributions will still count toward the taxpayer’s required minimum distribution for the year. This provision has been made permanent.

Increase in expensing limits. The law permanently extends the increased Section 179 allowable expense limit, allowing eligible businesses to expense, rather than depreciate, up to $500,000 per year of the cost of equipment and other eligible property placed in service during the tax year. The election is subject to a dollar-for-dollar phaseout as the cost of the expense-eligible property rises from $2 million to $2.5 million. The IRS will adjust the 179 limits for inflation.

First-year bonus depreciation. Eligible businesses may claim bonus depreciation for qualifying property acquired and placed in service during 2015 through 2019. The available bonus depreciation percentage depends on the year the property is placed in service: 50% for 2015 through 2017, 40% for 2018, and 30% for 2019. For certain longer-lived and transportation property, these percentages apply one year later than indicated, and bonus depreciation will be available through 2020.

Increase in “luxury auto” limits. The new law increases the dollar limits on depreciation deductions (and Section 179 expensing) by $8,000 for vehicles placed in service after 2015 and before 2018. The limits are increased by $6,400 for vehicles placed in service in 2018 and by $4,800 in 2019.