Opening a small business or becoming self-employed is one of the highest ideals in American culture but taxes often scare many people from opening their own business. In order to encourage people to become self-employed and to invest in their own business section 179 was created. Simply put section 179 allows the tax payer to expense the full amount of equipment software and similar products from his/her income in the year placed in service rather than capitalizing the equipment.
General features of section 179:
New or used property that you acquire in your trade or business may be eligible for a deduction of up to $139000 in 2012 and $25000 in 2013.
The maximum Sec. 179 dollar limitation is reduced dollar for dollar by the cost of qualified property placed in service during the year over an investment limitation.
The investment limit for 2012 is $560000 and 2013 is $200000.
The deduction is also limited to income. In other words you can’t take section 179 if you report a loss in income.
For property to qualify for section 179 it has to be used more than 50% in your business.
There are certain pieces of property that are eligible for taking the section 179. For example certain tangible property such as machinery equipment livestock computer software and vehicles that are used for work purposes (not just driving there) are considered qualified Section 179 property. Certain vehicles are limited to a deduction cap of $25000. Other eligible property includes property contained in or attached to your business building such as signs office equipment refrigerators etc.
Certain qualified leasehold improvement property qualified restaurant property and qualified retail improvement property fall under the Section 179 rules as well.
There are some types of property which are exempt from section 179. Some of these include investment properties rental properties or any property that produces royalties. Any property that doesn’t meet all of the requirements above is not eligible for the section 179 deduction. Please keep in mind that these are just guidelines and to get the most out of your deduction seek the advice of a qualified Louisville CPA.