What is Section 179? How does section 179 work? Example of using section 179 shown in video. (Section 179 expense deduction) IRS Section 179 Depreciation Deduction Overview explained in plain English (IRS Publication 946) downloadable notes found here: https://www.dropbox.com/s/zr3w3h68728tft4/Section%20179%20Summary%20Notes.docx?dl=0 Why is it important to know about Section 179? 2:12 - If you own your own business or want to start your own business this may help you reduce your taxable income. - Even if you are not an accountant this will give you some insight to the type of tax advantages business owners have, because the tax code is primarily written for business owners and people who create businesses. Section 179 – What is it? 2:36 This is an elections allows you to accelerate depreciation on eligible assets. It allows you (the business owner) to take a greater tax expense deduction (Depreciation in this case) and thus it further reduces your business taxable income. Section 179 – Why do people use this deduction? 3:58 The end result is you will pay less tax in the current tax year. So the idea of this whole thing is at the end you will pay less tax. Note: You cannot use section 179 to drive your business taxable income below zero so keep that in mind. Who can take/use the section 179 Deduction? 4:46 People who own a business and purchase property that will be used for business purposes. When can you take section 179? 4:55 5:22 - If the property is eligible for 179 (as shown in the examples below) and only within the first year the asset is placed in service. What property qualifies for section 179? Some Examples: - Machinery and equipment. - Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs. - Gasoline storage tanks and pumps at retail service stations. - Livestock, including horses, cattle, hogs, sheep - Vehicles used in business you can take 179 up to a certain amount (see the rules) 6:15- What property does not qualify for section 179? Some Examples: - Assets purchased and placed in service that are used to generate “rental” Income - Buildings - Land and land improvements - Leased property (Yes and No) See Pub 941 Limitations: 6:50 Currently $500,000 of 179 allowed per year. Subject to change each year. There are other limitations as well so please refer to the publication at the bottom of this document. Does the section 179 deduction Carryover to the next year if you cannot take it due to business income limitations? Yes – For an unlimited number of years. Simple Example of taking 179 - 8:15 New Computer purchased on 1/1/2017 for $10,000. This computer has a 5 year life so 60 months of depreciation will occur over its recoverable life. (5 Years x 12 Months) = 60 months of depreciation expense Using the straight line depreciation method in the first year we could expect to be able to expense through depreciation only $2,000 of this computer. (12/60) x $10,000 = $2,000 depreciation for the year. This would normally be all the depreciation we could take on this asset, but if we were to elect section 179 we could expense the entire asset cost of $10,000 in the year. Some Downsides of 179? 13:18 - Reduces your cost basis in the asset to zero so if you sell the asset later on you will have to pay tax on the proceeds received. - If you expect your business income to go up in future years you might not want to depreciate everything in the current year, because then you will not have a depreciation expense deduction in future years when your income is higher. Class of lives Examples (Using MACRS Lives) Computer and information system type of devices - 5 year life/recovery period Office furniture, fixtures, machinery and equipment typically - 7 year life Improvements - 15 year life What the best place to learn more about section 179? The Bible of Depreciation is found on the IRS Website: Publication 946: https://www.irs.gov/pub/irs-pdf/p946.pdf My Website: Moneyandlifetv.com Twitter: https://twitter.com/Mkchip123 Facebook: https://www.facebook.com/moneyandlifetv/ ***Disclaimer*** All of the information in this video is presented for educational purposes only and should not be taken as financial, tax, or investing advice by any means. I am not a financial adviser. Although I am a CPA I cannot advise someone for tax purposes without knowing their complete tax situation. You should always do your own research before implementing new ideas or strategies. If you are unsure of what to do you should consider consulting with a financial adviser or tax accountant such as an Enrolled Agent, or Certified Public Accountant in the area in which you live. Thanks for taking time to check out this video, and our channel. Have a great day and we will see you in the next video!