Section 179

[Mirka]

Hi guys I have my own NEW business but not making any revenue yet because it was established the last year of 2020 and is kind of self-employed. I bought a car weighs over 6,000lbs and it costs me around $45,000. How can i fully take advantage of Section 179 to deduct and how much should i expect for my next year tax refund. Because it will be my first time doing so any comment or explanation will help me a lot. 

[tagteam]

Section 179 has both a dollar limitation and a taxable income limitation.

See https://www.irs.gov/pub/irs-drop/rp-19-08.pdf

If you have no taxable income from an active trade or business for the taxable year (including earned income as an employee), then you cannot take advantage of the Section 179 deduction.

[Mirka]

how about an independent contractor (uber, doordash, lyft) I've been doing this since pandemic 2020 and still doing now.

is that count as the business purpose and get deduction i want which is section 179? 

is there any particular dollar amount i generate in order to qualify or not? 

[tagteam]

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@Mirka wrote:

is there any particular dollar amount i generate in order to qualify or not? 

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Your deduction is simply limited to the amount of taxable income from a trade or business, which would include salaries/wages earned as an employee and self-employment income.

[VolvoGirl]

You have to have a profit on Schedule C for self employment business income.

Some expenses, such as home office or section 179 depreciation can only be used to reduce your schedule C taxable income to zero, and not to create a loss. Excess deductions for these carry over to the next year.  

[VolvoGirl]

Do you need some general self employment info since you are new to self employment?

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.  Here's a Schedule C  https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

You can enter Self Employment Income into Online Deluxe or Premier but if you have any expenses you will have to upgrade to the Self Employed version.  How to enter self employment income

https://ttlc.intuit.com/community/self-employed/help/how-do-i-report-income-from-self-employment/00/...

For the future, you should use a program like Quicken or QuickBooks to track your income and expenses.  There is a QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Online Self Employed  return....

http://quickbooks.intuit.com/self-employed

You will need to keep good records.  You may get a 1099NEC at the end of the year if someone pays you more than $600 but you need to report all your income no matter how small and if you don't get the 1099NEC.

You use your own records.  You are considered self employed and have to fill out a schedule C for business income.   You use your own name, address and ssn or business name and EIN if you have one.   You should say you use the Cash Accounting Method and all income is At Risk.   

After it asks if you received any 1099Misc or 1099NEC it will ask if you had any income not reported on a 1099Misc. You should be keeping your own records.  Just go through the interview and answer the questions.   Then you will enter your expenses.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 2 line 4 which goes to 1040 line 15.  The SE tax is in addition to your regular income tax on the net profit.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 14 which flows to 1040 line 8a.  Turbo Tax automatically calculates the SE Tax and Adjustment.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf

[Mike9241]

if you take section 179 that isn't deductible because there is no business income. the amount carries over to the next year and is deductible to the extent of net business income in that year.  the issue you face is if there are a lot of years without enough net business income to use up the 179 deduction. 

[Sharon F]

I totally understand that there needs to be income on the Sched C .... however, does it only rollover to future years or can it also roll over into W-2 wages?

[VolvoGirl]

No only to Schedule C.  Section 179 can only reduce your Schedule C to zero.   

[AmeliesUncle]

The section 179 would be used against your W-2 wages,

However, that may not be a good idea.  It would save income tax this year, but if you spread out the depreciation to future years when you have a business profit, it could save BOTH income tax AND self employment tax.