Question for the Tax Gurus

[jrdavid68]

Wondering if anybody out there might have some advice. My wife became and independent consultant beginning 1/1/2004. She does practice management and software trainings for offices in the Dentistry field.

We bought a Touareg last year, but it was purchased under my name (I have better credit). I'm wondering if there is a way to get the Treg used as a deduction under section 179.

I know up front that the fact that it was purchased last year and in my name not hers, are both problems. So, I guess I am wondering if it would be worth while to trade it in on a new one this year and get the new one in her name. Could the hit we take for that be offset in the tax savings?

Anybody know a good tax consultant in the SF Bay Area?

Thanks,

[qikcpa]

does the toureg qualify for the 179. does it have a gvw of 6000 lbs. If you and your wife are mfj it doesnt matter whos name the vehicle is in. First year in business...does she even need the 179 after all her other deductions. keep in mind the 179 cant be used to generate a loss.

[jrdavid68]

Thansk qikcpa -

Apparently it does qualify - it comes up from time to time on a Touareg forum that I frequent.

The last few years we have been "Married filing Separately - Itemized" - I work the taxes each way and it turns out best if she takes the kid deductions (her kids) and I take the house deductions etc.

She doesn't have a lot of deductions doing this. She gets reimbursed for many of the trips that require a rental car, hotel and airfare. She also has one semi-permanent contract that gets her 10-12 days a month - she will gross more on that contract alone than she did last year, but with a bigger tax hit.

If the 179 deduction is $25K, how much would she need to gross for that to make sense? I guess I was just curious if we could somehow trade the current V6 in for a V8 (more power = good) and offset the hit by the tax savings.

Thanks!

[qikcpa]

179 max is $100k. depends on what bracket she is in. since she cant take the Earend income credit (MFS) there isnt that much work involved in figuring it out. figure her tax rate and then add the 15% self employment tax and youve got a quick and dirty percentage to multiply the 179 election by and poof. strategically you may want to look at setting up and S-corp to ditch a good part of the Self-employment tax.

ps. I tell my clients to first make a good economic/business decision then try to max the tax benefit. trading the year old v6 for a v8 for more power (though it makes sense to me) might not be the most economic thing to do. just a thought. I would rather see you do a SEP for her. 25% of her income can go into a retirment account.

[jrdavid68]

qikcpa,

Do you have any clients in CA ? :-)

[qikcpa]

huntington beach and studio city. Sounds like you need a good Mom & Pop CPA. As I mentioned you should look into an S-corp for your wife. without being too agressive you can save 1/2 of the self employment tax on your/her tax return. Keep in mind the s-corp (unlike a c-corp) doesnt pay income tax so there is no double taxation issue. Its a great deal. Incorporation should run you about $600. and you can save up to $6 or $7k in taxes per year (depending on income)