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 the "Tax Professionals" section under "Tax Code, Regulations and Official Guidance." It's also available through tax research databases like RIA or CCH if your accountant has access to those. For grantor trust documentation, the key provisions that establish grantor trust status typically include: (1) the grantor's retained power to revoke the trust, (2) power to substitute assets of equivalent value, and (3) administrative powers like the ability to control investments. Most revocable living trusts drafted 8 years ago should already have this language, but it's worth having your estate planning attorney review it to ensure it's still current. For your timing question with the additional $80k equipment purchase - you might want to consider whether splitting the purchases between tax years makes sense based on your projected income levels. If you expect lower business income next year, taking the full Section 179 deduction this year might be more beneficial since the deduction is limited to business income. Alternatively, you could use Section 179 this year and bonus depreciation (80% in 2024) for next year's purchase to maximize your total deductions across both years.

You can find Revenue Ruling 2013-14 on the IRS website at irs.gov - just search for "Revenue Ruling 2013-14" in their search bar. It should pull up the full text. You can also find it through tax research databases if your accountant has access to those. For grantor trust status, the key provisions typically include: (1) the grantor retaining the right to revoke the trust, (2) power to substitute assets of equivalent value, or (3) administrative powers that benefit the grantor. Since yours is a revocable living trust from 8 years ago, it likely already has the necessary language, but having your attorney review it against current IRC Section 676 requirements wouldn't hurt. For timing optimization with your additional $80k purchase, consider whether your 2024 business income will be higher or lower than 2023. If lower, you might want to accelerate the purchase into 2023 to maximize the benefit of the Section 179 deduction against higher income. Also factor in that bonus depreciation drops to 60% in 2024, so the relative advantage of Section 179's 100% immediate deduction becomes even more valuable.

You can find Revenue Ruling 2013-14 directly on the IRS website at irs.gov in the "Forms & Instructions" section under Revenue Rulings, or through tax research databases like RIA or CCH if you have access. It's also worth looking at Revenue Ruling 85-13 which provides additional context on grantor trust treatment for business ownership. For grantor trust language, the key provisions typically include: (1) the grantor's retained power to revoke the trust, (2) retained power to substitute assets of equivalent value, and (3) retained administrative powers over trust assets. Your 8-year-old trust documents should be fine if they include standard revocable living trust language - grantor trust status is usually automatic for revocable trusts under IRC Section 676. For timing optimization with your additional $80k purchase, consider that Section 179 is "all or nothing" in the year you place the equipment in service. If your business income varies year to year, you might want to time the purchase to maximize the deduction's benefit. Also, remember that unused Section 179 deductions can't be carried forward like regular depreciation - you lose them if you don't have sufficient business income in the year of purchase.

You can find Revenue Ruling 2013-14 on the IRS website at irs.gov - just search for "Revenue Ruling 2013-14" in their search bar. It's also available on most tax research databases like RIA or BNA if you have access through your accountant. For grantor trust language, the key provisions typically include: 1) The grantor retains the power to revoke the trust, 2) The grantor is treated as the owner of trust assets for income tax purposes, and 3) All income, deductions, and credits are reportable on the grantor's personal return. Since your trust is 8 years old, it's worth having your attorney review it against current IRC Section 676 requirements, but most revocable living trusts from that era should still meet the standards. For timing optimization with your upcoming $80k purchase, consider whether splitting it between tax years makes sense based on your projected income levels. If you expect higher income next year, accelerating the purchase into this year might be beneficial. Also remember that Section 179 requires the equipment to be "placed in service" during the tax year, not just purchased, so plan your installation timeline accordingly.

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.

Just to add to Isabella's excellent response - when reviewing your 8-year-old trust documents, also check if they include specific language about Section 678 (beneficiary treated as owner) in addition to Section 676. Some older trusts were drafted with broader grantor trust provisions that can create complications. One more timing consideration for your future $80k equipment purchase: if you're close to the business income limitation in any given year, remember that bonus depreciation doesn't have the same taxable income restriction that Section 179 has. So you might want to use Section 179 for the current $145k purchase (since you presumably have sufficient income this year) and consider bonus depreciation for next year's purchase if your income situation changes. Also, make sure to coordinate with your S Corp's fiscal year if it's different from the calendar year - the timing of when the deduction flows through to your personal return depends on the S Corp's tax year end.

Great to see you're taking such a thorough approach! Regarding audit experience with trust-owned entities and Section 179 deductions - I haven't been through an audit myself, but my CPA shared some best practices after handling several clients who were audited on similar issues. The IRS typically focuses on three key documentation areas: 1) Clear proof of grantor trust status (your attorney review should handle this), 2) Proper allocation of the deduction based on ownership percentages, and 3) Evidence that the equipment is actually used in the business (photos, invoices, business records showing the equipment in use). One thing she emphasized was keeping a paper trail that shows the "flow-through" - basically documentation that clearly connects the S Corp's Section 179 election to your personal return via the trust. This might seem obvious, but having it explicitly documented can save headaches if questions arise later. Also, since you're planning another purchase next year, consider whether it makes sense to bunch both purchases in one tax year or spread them out, especially if your business income varies significantly year to year. The taxable income limitation someone mentioned earlier could be a factor. Good luck with everything - sounds like you're definitely on the right track!