Can a section 179 equipment purchase that generates a loss for the sole proprietor be rolled over into the owner's W2 wages reducing their overall AGI?

[b_scott003]

For example my sole proprietorship has a gain of $10,000 but also have w2 income from another full time job of $100,000.  If I buy a new diesel 2500 costing $70,000.  Will that reduce my taxable income from my normal W2 job?

[Anonymous_]

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@b_scott003 wrote:
....Will that reduce my taxable income from my normal W2 job?

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Yes, W-2 income counts for the purposes of the section 179 deduction.

[b_scott003]

Ok, so in general.  I have $10,000 profit from the Sole Proprietorship and $100,000 w2 income from another full-time job.  My taxable income is currently $110,000.  If I buy a $70,000 truck (6,000+ GVWR with 6' or greater inner bed dimensions), I can deduct the full cost of the truck ($70,000 from the $110,000)?  That is ofcourse if I buy it today and 100% of the miles driven today are for business use.  Is this correct?  Thank you for your insight.

[Anonymous_]

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@b_scott003 wrote:

....I have $10,000 profit from the Sole Proprietorship and $100,000 w2 income from another full-time job.....If I buy a $70,000 truck (6,000+ GVWR with 6' or greater inner bed dimensions), I can deduct the full cost of the truck ($70,000 from the $110,000)? 

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Yes, you can do so because your W-2 income counts as "business income".

[b_scott003]

Even if the W-2 income is from another company not associated with the sole proprietorship?

[Anonymous_]

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@b_scott003 wrote:

Even if the W-2 income is from another company not associated with the sole proprietorship?

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Yes, that is correct; the two do not have to be connected.

[Critter-3]

Ok ... a 179 deduction CANNOT produce a loss on the Sch C so there is nothing allowed to negate the wages. Any unallowed 179 deduction is carried forward and used on the Sch C in the future.

Now instead of the 179  you can use the bonus depreciation instead ... that can produce a deductible loss on the Sch C which flows to the 1040.   However you do NOT need to bonus the entire amount ... this is where a paid tax pro would council you to your options not only this year but also for the future.   So are you going to hurt yourself in the future by making a mistake today?  Will the business even be open in the future and if so for how long?   Taking the 179 or bonus depreciation today will reduce the basis in the asset so if you sell it later you will have a gain then thus just pushing off the inevitable.  Lots of things to consider. 

[Anonymous_]

There is a reference in the Regs; a W-2 salary/wages is considered a trade or business, so Section 179 can be used as an offset to the extent of that amount.

[Critter-3]

@Anonymous_ 

Are you referring to the form 2106 where waged employees can take the 179 deduction ?    Employee business expenses are no longer deductible. 

[Anonymous_]

@Critter-3 

No. I am simply stating that Section 179 permits the taxpayer to use that section to offset W-2 income as well as business income reported elsewhere on the return.

[Critter-3]

Ok ... so I ran a test and you are correct ... totally forgot this wrinkle.  Thanks for the reminder however the ability to take the deduction in one tax year and the wisdom to do so are separate discussions and require thought before making them.