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Archive for September 29th, 2010

Misunderstanding Sec 179 Maximums

Posted by taxguru on September 29, 2010

 

Q:

Subject: Advice Please- You are the only one who knows this, it seems

Hello Mr. Kerstetter,
 
I came upon your blog on section 179 regarding maximizing the deduction.  I am the sole shareholder for my S Corp  which will have about $30,000 of sec 179 purchases this year, 2010.  My salary is $100,000 and assumed taxable income for S Corp in 2010 is $50,000.  According to your blog (I’ve copied below), I can take the maximum of $130,000 sec 179 deduction ($30K from purchases and $100K from my salary.  Is this right?  Can you please give me a publication reference or any official rulings for this rule?  My CPA doesn’t know about this, and I would like to refer him to it! 
 
Thanks so much in advance.

 

A:

Either I am misreading your question or it looks like you are misunderstanding the concept of the Section 179 deduction.

Section 179 is in essence a type of accelerated depreciation for the cost of business equipment, allowing its cost to be deducted in the first year rather than spread out over several years.

Although your W-2 and other income give you a potentially higher maximum Sec. 179 deduction, it is still limited to the cost of the newly acquired qualified equipment.  This means that if your business only purchased $30,000 of equipment, that is the maximum Sec. 179 that can be claimed for this year.  Of course, if you do purchase another $100,000 of equipment before 12/31/10, the Sec. 179 deduction would be much higher.

I hope that helps clarify the issue.

Good luck.

Kerry Kerstetter

 

Follow-Up:

Mr. Kerstetter,
 
Thank you so very much for your reply!  Yes, I was missunderstanding the concept of section 179 and you have cleared it up for me.

 

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