SECTION 179 TIMING

[hubison]

I understand that if a fiscal year S-corp claims section 179 expense during it's filing year, the sole shareholder is limited to what the expense cap is for their calendar filing year. Example, 9/30/11 S-corp can claim upto $500,000 in 179 expense, but sole-shareholder would be limited to claiming $139,000 on their 2012 return. Question is whether shareholder could claim 179 expense related to certain property(retail/restaurant) that occured in allowable period for business, but was not in effect for filing period of shareholder? Example, retail property expensed in November 2011 for s-corp, but deduction not in effect for 2012 shareholder return.

[mwcpa]

while fiscal year end S corps are out there, they are not common.

if the corporate year ended September 30, 2011 then the entire K-1 appears on the 2011 income tax filing for the shareholder. So, if the K-1 included a separately reported deduction on the K-1 the entire amount relates to the 2011 income tax filing for the shareholder.

"Example, retail property expended in November 2011 for s-corp, but deduction not in effect for 2012 shareholder return. "

This deduction would be reported on your hypothetical year end September 30, 2012 tax filings and reported on the 2012 tax filings of the shareholder.

[rangerj]

For tax years BEGINNING in 2010 and 2011 the section 179 deduction is limited to $500,000. For tax years BEGINNING in 2012 the limit is $139,000. See Rev Proc 2011-52. As of now the 2013 limit is $25,000 (section 179(b)(1), but that may change at the whim of Congress. Keep in mind that with a Sub-chapter S election the "CORPORATION" is no longer the "taxpayer" (with some exceptions, e.g. built in gains), so that the tax year is that of the shareholder(s). As a side note, there are a few (VERY FEW) fiscal year individual returns. While these are no longer allowed there are a few left. In 45 years I have only seen 2.

[mwcpa]

good points ranger...

[hubison]

We do have a number of fiscal year S-corps that we file each year and I do understand the basics of reporting. The question was if a deduction is claimed on the fiscal year S-corp return year that isn't availalble when the individual files their 1040, is it allowable and if not how do you adjust for it?

[mwcpa]

As separately stated items, like 179, are addressed at the shareholder level, the excess deductions may be lost....or suspended (at best)

I remember a number of years ago, I had a partner who focused only on reporting as low of income as possible at the corporate level... he did this by having a client who had a combination of 6 LLCs and s-corps take the maximum 179 allowed.... this was back when 179 was capped at, as I recall, under 20K.... so, merely by example, here was a client with 120K of 179 and he could only use 20K... ouch! He had a tough pill to swallow when his tax projection was off by 39K in tax.....

Sometimes being to aggressive is not best...

with all of the fiscal year ends, do you clients like having the "444" deposits..... money on deposit in perpetuity with IRS....

[rangerj]

Section 179 allows for the expensing of a qualified depreciable asset to the extent of the statutory limits in a given year. Any amount that qualifies is deducted and any excess is depreciated over its, the depreciable asset, useful life per section 168 (MACRS). You could hold off placing an asset in service and take the section 179 deduction in the next (or later) year, but you cannot place part of an asset in service. In other word there is no carryover provision for the section 179 deduction. Remember the deduction is limited to taxable income (from the business) so a carryover in an NOL situation would not be allowed either.