Section 179 Deductions for Current 1099 Compensation

[Poolguy22]

Hello- I’m currently a 1099-NEC independent contractor working in sales, but I’m interested in starting my own construction business. The new business will require construction equipment (i.e., skid steer, excavator and equipment trailer). I will make north of 200k in 2021 with my 1099-NEC, but my question is if I can use Section 179 to purchase equipment for my new business and use those deductions to reduce the amount of taxes that I will owe at the end of this year (assuming the equipment is purchased and placed in service in 2021)? Thank you!

[Anonymous_]

You should be able to use Section 179 provided you are within the dollar limits and income limitation.

See Publication 946 (2020), How To Depreciate Property | Internal Revenue Service (irs.gov)

Note that you should also be able to take advantage of bonus depreciation (the special depreciation allowance).

See Publication 946 (2020), How To Depreciate Property | Internal Revenue Service (irs.gov)

[Mike9241]

section 179 is limited to business income before the 179 deduction. so if you net $200K before 179 but the equipment costs $300K. if you take 179 on all of it you are actually only allowed a deduction of $200K with $100K being a carryover to next year.  there is no such limitation if the equipment qualifies for 168K - bonus depreciation.  I would suggest you sit down with a tax pro who would be able to discuss tax-saving ideas such as a retirement plan with you and record-keeping and other requirements depending on the nature of your work. maybe form an S-Corp or LLC. 

[Juako]

Would be better to use the section 179 to deduct the car purchase to buy a house?

I mean, if we deduct car expenses like maintenance and interest payments, this will lower your income and the possibility of buying a house, right?

But what about section 179? Will this help you out leaving you income as high as possible but giving you a tax break? 

[AliciaP1]

It depends.  The section 179 election determines how you will treat the depreciation of the car.  Your car expenses like maintenance and interest are not part of the election.

So, if your mortgage lender considers an add-back for depreciation expense when evaluating your income, then the section 179 election for depreciating the car placed in service in 2022 (or 2023 if you're looking ahead) will give you the best scenario.  The maintenance and interest payments will reduce your income and would not be in consideration for an add-back because they are normal operating expenses.

@Juako