Everything you need to know about tax code 179 - page 2

SO WHO QUALIFIES? Again, you need to check with your CPA to be sure, but most small business owners and the self-employed like Doctors, Attorneys, Accountants, Realtors, etc, do indeed qualify.

THERE ARE LIMITATIONS: For instance, a taxpayer's annual Section 179 deduction can't exceed that year's aggregate net business taxable income from all sources (calculated before the Section 179 write off). But then again, that's why we have CPA's to make sure we are compliant. DIFFERENT TYPES OR COMPANIES: When you conduct your business as a sole proprietorship — or as a single-member LLC treated as such for federal tax purposes — you're allowed to count any salary, wages, and tips that you may earn as an employee, as additional net business taxable income. If you're married and file jointly, you can also count your spouse's earnings from outside employment as well as any net self-employment income from business activities in which he or she actively participates. These taxpayer-friendly loopholes greatly reduce the odds that you'll be adversely affected by the net business income limitation.

When your C or S Corporation owns your new vehicle, it must be used over 50% for actual corporate business activities (based on mileage) to qualify for the Section 179 write off. Unfortunately, personal use by an employee who is also a more-than-5% shareholder (this means you) doesn't count as corporate business use for this purpose, even though the personal-use value is properly reported as additional taxable compensation on your Form W-2. The same restriction holds true for other corporate employees who are related to a more-than-5% shareholder. When the over-50% business-use test is failed, your corporation must depreciate the vehicle using the straight-line method, which means it will take six tax years to fully depreciate the darned thing. That takes a lot of the air out of this idea. The corporate-owned vehicle situation also creates another complication: a shareholder-employee (like you) can have a principal-place-of-business office in the home only when the arrangement is for the convenience of the employer (your corporation). For these reasons, the Section 179 write off doesn't work as well in the corporate scenario. But don't give up hope. Consult your CPA for ideas. If, however, you run your shop as a partnership, multimember LLC, or S corporation, please consult your CPA about how to take full advantage of the expanded Section 179 write-off. Why? Because the $100,000 deduction maximum, and the net business income limitation apply at both the entity level and at your personal level. This means some careful planning may be required in order for you to collect the expected tax savings from your new truck, van or SUV.

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