Section 179, Partial Section 179, and Special Depreciation Allowance

[ClareCA]

I am still at a loss to figure out how to treat the new van that I purchased in 2019 for business.  I plan to have the same income over the next five years, use the van for at least five years for business, and I file jointly with my husband.  I plugged in all the different options to see how it affects my federal refund and my state refund.  I am greatly concerned that I will get audited since taking the Special Depreciation Allowance puts my net income in the negative, but it does reduce our overall joint taxable income.  Anyway, I have been trying the different scenarios and choices, and then Turbo Tax did an update, and now the numbers aren't coming out the same.  Was there just an update on the Business Asset Depreciation section?  Where do I go to read what the update was?  It seems it is the Partial Section 179 in combination with the Special Depreciation Allowance was just changed.

[ClareCA]

It seems it went back to normal.  For a moment the Partial Section 179 with the Special Depreciation Allowance was giving numbers for just the Partial Section 179 without the Special Depreciation Allowance.

[MarilynG1]

You won't necessarily get audited if your Business has negative income for the first year or two.

If your Business Income will be about the same for the next five years, and you plan to use your Business Vehicle for five years, you could use Regular Depreciation, which will give you a known, set depreciation amount for the next five years.

This would make it easy for budgeting; and you won't have to worry about Depreciation Recapture in the event you don't fully depreciate the vehicle.

Click this link for a discussion on Managing Business Assets. 

I don't know what was included in the last update, but if your numbers are changing, it could have affected this area.  Also, making other entries since you looked at the depreciation options could have affected your return, too. 

[ClareCA]

Thank you for your answer.  This is not my first year of business.  When I selected straight depreciation and got to the end of my return, TT said that I had a medium risk of being audited because I used Schedule C and because my income was drastically reduced from prior years and because I have a home office.  The only way that I could figure out what to do was to try all of the options available to see what consequences it had for my refund/tax owed.  I ended up selecting Partial Section 179 with no special depreciation.  I took $20,000 as a partial depreciation this year, and the rest will be depreciated over the next four years.  This was the best option where I ended up owing the least tax to my state of California.  It wasn't the biggest refund option, but my federal refund was close to the tax that I owed the state, which is satisfactory to me.  The best part is that my overall income with my husband, since this is a joint return, remained about the same as last year, and Schedule C didn't factor in because the Standard Deduction was more than the amount of my deductions, and my risk of being audited went to low.  I didn't get to take full advantage of the Qualified Business deduction of 20%, but I am looking forward to things like that in future years.  My advice to others out there is the same as advice I got here, which is try all the possibilities to see what it does to the numbers.  The straight special bonus depreciation would have been nice and given me the biggest refund on my Federal taxes but it also gave me the largest amount due to the state.  That option would have given me another nice reduction in income the following year when the balance transferred over, but it would again put me at risk for an audit.  It would have been nice to take advantage of this rare opportunity to expense it all at once, but the risk of audit isn't a chance that I want to take.  Hope this helps someone.