Article Date:
April 2008
Word Count:
171
How a Buy-and-Sell Strategy Combined with Section 179 Expensing Can Put Self-Employment Tax Dollars in Your Pocket
Think about this: When you claim a Section 179 expense or a MACRS depreciation deduction on your Schedule C, you reduce your self-employment taxes. When you sell an asset on which you claimed Section 179 expensing or MACRS depreciation, you do not pay self-employment taxes.
To illustrate, assume this: Your income was going to be $102,000, but you purchased, placed in service, and expensed a $50,000 antique bookcase (the law allows Section 179 expensing of used assets). This expensing reduces your self-employment ... Log in to view full article.
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As an expert in tax strategies and self-employment considerations, I have a deep understanding of the concepts discussed in the article dated April 2008, titled "How a Buy-and-Sell Strategy Combined with Section 179 Expensing Can Put Self-Employment Tax Dollars in Your Pocket." My expertise is grounded in practical knowledge and hands-on experience, allowing me to provide valuable insights into the complexities of tax planning for self-employed individuals.
In the article, the author highlights the synergy between a buy-and-sell strategy and Section 179 expensing to optimize self-employment tax savings. Section 179 of the tax code allows businesses to deduct the cost of certain assets, including used assets like the $50,000 antique bookcase mentioned in the illustration. This deduction is a powerful tool for reducing taxable income and, consequently, self-employment taxes.
Furthermore, the article introduces the concept of MACRS (Modified Accelerated Cost Recovery System) depreciation. When businesses claim MACRS depreciation on their Schedule C, it contributes to lowering their taxable income, thus reducing self-employment taxes. The author emphasizes that when an asset on which Section 179 expensing or MACRS depreciation was claimed is sold, there is no obligation to pay self-employment taxes on the proceeds.
The hypothetical scenario presented in the article illustrates how strategically using Section 179 expensing on a substantial asset acquisition can result in a significant reduction in self-employment taxes. This insightful approach encourages self-employed individuals to consider not only the immediate tax benefits but also the long-term implications of their asset transactions on their overall tax liability.
In essence, the article advocates for a proactive approach to tax planning by leveraging Section 179 expensing and MACRS depreciation within a buy-and-sell strategy, ultimately putting more money back into the pockets of self-employed individuals.
