Tax question - Section 179 deduction

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Will Patterson
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p.1 #1 · Tax question - Section 179 deduction

This past year was my first year running my photography business. It started in December of 2011. I am trying to get through doing my taxes and one of the areas that has me questioning what I should be doing is the Section 179 Deduction.

I know for big ticket items I'll want to amortize them on a depreciation schedule. But one of the next questions I'm getting is if I would like to include them in a section 179 deduction, basically claiming equipment as write offs completely is what I'm understanding. But, then that means the equipment is no longer going to be amortized, correct?

How should I handle this section? Any tax gurus reading this?

Feb 06, 2013 at 06:09 PM

DanBrown
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p.1 #2 · Tax question - Section 179 deduction

You can only do the deduction one way or the other - either do a 179 deduction of 100% of the value (up to the limits for 179 deductions) or amortize the equipment. I prefer the 179 deduction (called first year expensing).

Feb 06, 2013 at 06:28 PM

Will Patterson
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p.1 #3 · Tax question - Section 179 deduction

The tax program I am using calls the 179 an election, as in you can amortize the equipment, then also choose an amount to deduct as an expense.

Here's a copy and paste -

"Please enter the portion, if any of Canon 5D Mark II that you would like to deduct as an expense this year using the Section 179 expense election. The total amount that you may expense is limited to $500,000 for all assets and will be further limited by a threshold cost and your income."

Feb 06, 2013 at 07:47 PM

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p.1 #4 · Tax question - Section 179 deduction

The best answer to your question is to hire an accountant. When you read the link below you will understand how murky the 179 can be. Lots of things to consider that might not be on your radar now. My accountant (CPA, MT) amortized my equipment over a specified period. That way worked great every year (even in the long run), especially when starting out. It's not that DIY 179s might be all that tricky, but rather being audited, possibly for years, for doing it wrong. An accountant is a necessary business expense.... and his fee is deductible too.

http://www.section179.org/section_179_deduction.html

Feb 06, 2013 at 11:23 PM

Mike Pearson
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p.1 #5 · Tax question - Section 179 deduction

First, this is not to be considered legal advice or tax advice. It is only an attempt to explain my understanding in terms that may make it easier for you to make sense of something like official IRS forms and publications.

On its face the 179 deduction is simple. You get to deduct up to $500,000 of business equipment you buy in 2012.

Then things get more complicated:
1. Not all property qualifies, but what doesn’t involves real property and SUVs and the like. Tangible personal property and software used in the business does qualify (except certain vehicles), so if you leave out real estate, buildings and vehicles you can forget this complication.
2. If you bought more than $ 2 million of equipment you have further complications (and your own accounting staff to mess with this complication).
3. Your 179 deduction is limited to your taxable income. However there is a special way to compute taxable income for this purpose. If you hit this complication you can work your way through the forms if you are accounting oriented. Otherwise best get an accountant or use tax software that will compute the limit for you.

The 179 deduction is not required. You elect to take it. You can elect to take the entire cost of the qualifying property or just a part. You can elect which property or properties to take it on and what dollar amount of a particular property to take.

When you take the 179 deduction for a property, or a portion of it, what you have done is reduce the value of the property for depreciation purposes. So, if you take the 179 deduction for the entire value of a camera there is no value to depreciate. If you take the 179 deduction for half its value you still have half its value you can depreciate (based on a starting cost for the property of half its cost).

If you elect to take a 179 deduction that is in excess of the net income limitation (#3 above) the part you can’t take this year carries over as a 179 deduction eligible to be taken in future years (unlimited carryover).

Hope this helps.

Feb 07, 2013 at 03:48 AM

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p.1 #6 · Tax question - Section 179 deduction

Mike Pearson wrote:

Then things get more complicated:

Good advice. As the link I provided shows, it isn't all black & white. Amortizing equipment is really like a mortgage deduction - you can count on the sliding scale write-off for years. Without amortizing it is one and done - buy a $5000 camera, take the complete deduction that year, and the following year(s) you don't have that deduction until you buy more equipment. The IRS is more forgiving for the first three years of business, but if you are not showing a profit after that there is a good possibility that somewhere down the road you will be audited.... and it may not be for a 179 error. Set it up right to begin with so you don't have to correct it later. A good accountant can save you money on things you aren't even aware of.

Feb 07, 2013 at 01:12 PM

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