Can S Corps & LLCs with Trust ownership still use Section 179 deductions?

Thanks for the explanation, but I'm still confused. My accountant mentioned something about "non-individual shareholders" not being eligible for pass-through of Section 179. Does this not apply to grantor trusts? Also, does it matter what percentage of the S Corp the trust owns vs. my direct ownership?

The confusion comes from the fact that non-individual shareholders (like traditional corporations or certain trusts) generally cannot receive pass-through Section 179 deductions. However, grantor trusts are an exception because they're treated as owned by the individual grantor for tax purposes. The percentage ownership between your direct ownership and trust ownership doesn't affect the Section 179 eligibility as long as the trust portion is a grantor trust. However, it does affect the amount of the deduction that flows through to each ownership channel. Your S Corp will allocate the deduction based on ownership percentages, but all amounts allocated to your grantor trust will flow to you personally.

How does this tool work with more complex business structures? We have an LLC taxed as an S corp with a QSST (Qualified Subchapter S Trust) as one of the owners. Would it be able to handle that scenario?

Sounds interesting but I'm skeptical. Does it just spit out generic advice or does it actually reference specific IRS regulations? And can it handle equipment leases vs. purchases differently for Section 179 purposes?

It handles complex business structures really well. The system will analyze QSST situations specifically and explain how the Section 179 flows through to the income beneficiary, since QSSTs are treated differently than other trusts for S Corp purposes. It even flags when you might need to make special elections. The tool provides specific IRS regulation citations with every recommendation. For your question about leases vs. purchases, it actually differentiates between the two and explains when Section 179 applies to leases (only if they qualify as "finance leases" rather than operating leases) and cites the relevant tax court cases that established the precedent.

Wait, there's a way to actually get through to the IRS? Every time I call I'm on hold for 2+ hours and then get disconnected. How exactly does this service work? Do they just keep calling for you?

Yeah right. Pay a service to talk to the IRS? Sounds like a scam to me. The IRS can't even answer their own phones, I doubt some third party has a magic backdoor to them.

They use an automated system that holds your place in the IRS queue and calls you when an agent is about to be available. You don't have to wait on hold yourself - the system does it for you. They're essentially using technology to navigate the IRS phone system more efficiently than a human can. They don't have any special access - they're just using automation to handle the hold time. I was skeptical too until I tried it. I submitted my request around 8am, went about my day, and got a call around 10:30am saying an IRS agent was ready to talk. Connected immediately to a real person who was able to look up the specific revenue ruling related to my Section 179 question.

I hadn't considered that approach. Would adding another entity layer create additional filing requirements or complexity for annual maintenance? And would the restructuring itself trigger any tax consequences we should be aware of?

The single-member LLC doesn't require a separate tax return since it's disregarded for tax purposes. It does require maintaining the LLC in good standing with your state, which typically means an annual filing and possibly a state fee (in my state it's $800/year, but varies widely). As for restructuring, if done correctly, transferring S Corp shares to a single-member LLC owned by your grantor trust should be a non-taxable event. It's essentially considered a transfer to yourself for tax purposes. However, you need to be careful about the timing and make sure the operating agreements are properly drafted to maintain the S Corp election validity.

For 2023, isn't bonus depreciation at 80% now, not 100%? I thought it started stepping down 20% each year starting in 2023. And doesn't it phase out completely after 2026 unless Congress extends it?

You're absolutely right - I've updated my post. Bonus depreciation is 80% for 2023, not 100%. It steps down 20% each year: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and then 0% after that unless Congress extends it. This makes the Section 179 vs. bonus depreciation analysis even more important depending on your specific situation. Section 179 remains at 100% (up to the limits) while bonus depreciation continues to phase down.

This is incredibly helpful, thank you! I hadn't heard of Revenue Ruling 2013-14 before. Where's the best place to find the actual text of that ruling? I want to review it with my accountant to make sure we're interpreting everything correctly. Also, you mentioned documenting the grantor trust status clearly - are there specific provisions or language that should be included in trust documents to avoid any ambiguity with the IRS? Our trust was drafted about 8 years ago, so I'm wondering if we need to update anything to ensure it meets current standards for grantor trust treatment. The timing consideration is a great point too. We're actually looking at potentially purchasing another piece of equipment early next year (around $80k), so understanding how to optimize across tax years could save us significantly.

You can find Revenue Ruling 2013-14 on the IRS website at irs.gov in their "Rulings and Announcements" section, or through tax research databases like RIA or CCH if you have access. Your accountant should definitely have access to these resources. For grantor trust documentation, the key provisions that establish grantor trust status under IRC Section 676 include: 1) The grantor's power to revoke the trust, 2) The grantor's retained control over trust income/assets, and 3) Clear language that the grantor is treated as the owner for tax purposes. Since your trust is 8 years old, it's worth having an attorney review it to ensure it includes modern "grantor trust" language that explicitly references the relevant IRC sections. Regarding timing optimization, consider the "taxable income limitation" for Section 179 - you can only deduct up to your business's taxable income in a given year. If your current year income is limited, you might want to split the purchases across tax years. Unused Section 179 deductions can be carried forward, but immediate deduction is usually preferable for cash flow purposes.