Are you able to use Section 179 Depreciation deduction if your business had a loss?

[TaxGuyBill · Accepted solution]

Sort of.  It depends.

Yes, you can claim Section 179.  However, whether or not you can use the loss in the current year or if the Section 179 is carried to next year depends on the circumstances.

If the business is a Partnership or Corporation, you can not use a loss with Section 179.  If you claim Section 179, it will be carried to the next year.

If the business is a Sole Proprietorship (Schedule C or Schedule F on your personal tax return), claiming Section 179 will be allowed IF there is other 'earned income' on the tax return (such as W-2 wages).  If there is not enough 'earned income' for the Section 179 to offset, it will be carried to the next year.

[TaxGuyBill]

However, I should add that if your Self Employed business has a loss, it may not be a good idea to use Section 179 to offset your Wages.  Using regular depreciation (which is would also be used in future years) would offset both income tax AND self employment tax in future years (assuming the business will have a profit in future years).

[sara-leson]

Thank you very much for your answer.

[NagiCPA]

Can U explain why it is not a good idea to not take Section 179 to offset Self Employment Wages?

[Carl]

Can U explain why it is not a good idea to not take Section 179 to offset Self Employment Wages?

Huh? What wages? If a sole proprietorship or single member LLC the owner of that type of business can not be an employee of that business they own. Under no circumstances will the owner of a sole proprietorship or single member LLC issue themselves any type of tax reporting document. So if the business operated at a loss for the tax year, there is no SE tax assessed since there's no taxable income to assess it on.

Maybe you have an S-Corp or C-Corp? If so, and you are an employee of that corporation (which you can be) then the corporation *will* pay the SE taxes on the wages they paid you, any way you look at it.

[tax_chap]

If I have S-Corp, can I take Section 179 depreciation, which brings S-Corp at loss?

[Rick19744]

As an S corporation, some tax items are deducted on page 1 of the tax return and other items are separately stated on schedule K.

The items that are reflected on page 1 of the 1120s are what determines the loss reported on Schedule K line 1.

The separately items, which Section 179 is one of those items, is reflected on Schedule K.  This deduction may or may not be utilized.  It is only utilized if there is sufficient business income to take the deduction.  This will be determined when completing form 4562 line 11.  This is where the business limitation is determined.  Keep in mind, that if an S corporation shareholder receives wages from the company, these are considered business income for purposes of this limitation.  You need to make sure any wages earned are included in the amount reflected on form 4562 line 11.

Should you be limited, any unused Section 179 will be carried over to the next year.

[Carl]

Just FYI - but here's how I deal with it in my single member LLC business.

 - If the business does not have the "Taxable" income from which to take the SEC179 deduction against in the tax year I take it, and;

 - If the remaining depreciation after the SEC179 deduction will not be at least $500 for each year, then;

I don't take the SEC179 deduction. Over the long run, (actually, "short" run since most assets that qualify for the SEC179 deduction have a MACRS depreciation schedule of less than 10 years) the SEC179 deduction commonly results in me paying more taxes over the period of depreciation.

[Rick19744]

Additionally, I think you should look at taking bonus depreciation.  There are no business income limitations with bonus as there are with Section 179.  This deduction would just be presented on page 1 on the 1120S.  Bonus depreciation is not separately stated.

[Rick19744]

@tax_chap also keep in mind the original question is an "old" post.  This forum is on a new platform and many questions from the prior forum were populated into this new forum.  Most of those have a June 2019 date.

Generally best to start a new post for your question; best for you and others that may have the same question.

[Anonymous_]

@tax_chap The screenshot below is essentially what @Rick19744 is referring with respect to bonus depreciation. Note that you have to decline Section 179 treatment in the previous screen in order to get to the one shown below.

[AndrewMT]

Quick add-on question with my own scenario:

• I established a sole proprietorship this year (product design company)
• I have a full time job and have used some of the income from this job to buy hardware and software for my business
• At this moment, I have not yet established any clients nor received any income/revenue from my business

Based on the scenario above, can I deduct Section 179 expenses when I file my taxes for 2019?  Is there anything I should look out for (any word of caution)?

[Critter]

Already answered in your other post ... https://ttlc.intuit.com/community/tax-credits-deductions/discussion/section-179-deductions-for-relat...

[rgarcia032]

Are there particular asset classes placed in service in 2019 that are not available to take the 100% (or any type) of bonus depreciation?