Section 179 - Do You Qualify?

What is Section 179? Section 179 is called a loophole by some. For anyone with any tax experience, however, it is as standard in the IRS world as claiming mileage. Section 179 (Form 4562) allows people claiming items (meeting the criteria listed below) to simply expense certain things instead of depreciating them. This means you get to claim all of the money paid for the item in the year you purchase it and put it to business use (assuming 100% business use). Depreciation makes you spread that benefit out over multiple years.

In order to use Section 179:

● You must have taxable income of at least the amount you expense. This taxable income can come from the business, another business claimed by you, other wages and tips, and even your spouse’s wages and tips if married filing jointly.

● You can either expense (Section 179) or depreciate, not both, on the same item in the same year. Though there are special rules enabling you to depreciate the remaining amount of an item in future years you weren’t able to fully expense this year.

● You must use the item more than 50% for business purposes. If you use it less than 100% for business, you can only claim the percentage of the purchase price based on the percentage used in business (business percentage).

● You should still use that equipment 50% or more for business purposes over the number of years you would have otherwise been allowed to depreciate it (class life─explained on page 60 in book).

Section 179 does NOT apply to:

▪ Real estate
▪ Inventory
▪ Gifts or inheritance
▪ Property purchased from a relative
▪ Items you already owned in a previous year and are converting to business
▪ Heating and air conditioner units

Basically, if you purchase equipment for your business, Section 179 gives you a way to deduct the cost in one year, instead of little by little over multiple years. There are some further limits and rules associated with Section 179 explained in more detail in the book. I simply do not have the room to go into all the detail here.

This and other information may be found in the book listed below.
Permission to use or excerpt with proper attribution.
Simon Elisha, author, Taxes for Online Sellers—
A How-To Guide for Individuals on Federal Tax for Internet Sales
ISBN: 978-0-9796328-0-8
http://www.taxesforonlinesellers.com/