These three conditions in effect mean that payments for the creation of custom software are not deductible. In addition, three other requirements apply: • It must be purchased by the business. • It must be used for the business’ income producing activity. • It must have an expected useful life of more than one year. Using the Section 179 deduction requires the taxpayer to make an election to use Section 179 (rather than regular depreciation schedules) by completing and submitting with its tax return IRS Form 4562. A separate election must be made for each taxable year in which a Section 179 expense deduction is claimed. Some kinds of property and equipment do not qualify for the deduction: • Real property (land, buildings, permanent structures and equipment that are part of the buildings or structures). • Equipment that is purchased from yourself or a related party. • Air conditioning and heating equipment that is permanently affixed to a structure (i.e. central air conditioning). For tax years beginning after January 1, 2016, portable air conditioning units (e.g. window units) are deductible. Other Ongoing Costs Many other ongoing costs are deductible under IRC Section 162 as ordinary and necessary expenses. In general Section 162 deductibility appplies to: • Insurance costs (for example, casualty insurance, general business liability insurance, workers’ compensation insurance for any employees). • Bank charges for maintenance of business accounts. • Advertising costs in any media.
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