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Old 11-18-2016, 12:43 PM
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Deductible Business Expense/Depreciation

If I purchase a computer, hardware, etc., to be used by my business, an LLC, may I deduct the full expense/depreciated value in Year 1? Furthermore, would I still be able to deduct the full expense/depreciated value even if the purchase is financed over 18 months?



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Old 11-18-2016, 11:11 PM
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If I purchase a computer, hardware, etc., to be used by my business, an LLC, may I deduct the full expense/depreciated value in Year 1? ===>yes correct; You qualify for the Sec 179 deduction only if you buy long-term, tangible personal property , not real pty(land inv or etc) that you use in your biz more than 50% of the time. there is a term AKA sec 179 expensing;Sec. 179 doesn?t increase the total amount you can deduct, but it allows you to get your entire depreciation deduction in one year, rather than taking it a little at a time over the term of an asset?s useful life which can be up to 39 years or etc. This is called first-year expensing or Sec 179 expensing as mentioned above. I mean expensing is an accounting term that means currently deducting a long-term asset.For example, say in 2013,you buy a $4k photocopy machine for your business. Under the regular depreciation rules (using the straight-line depreciation method), you would have to deduct a portion of the cost each year over its 5-year useful life as follows:
2013: $400; 2014: $800; 2015: $800; 2016: $800; 2017: $800; 2018: $400. However, by deducting the copier under Sec 179 instead, you can deduct the entire $4K expense from your income taxes in one year. So you get a $4k deduction under Sec 179 in the year you purchase the item, instead of the $400 deduction she gets using depreciation. You can?t use Sec 179 to deduct more in one year than your net taxable business income for the year. To figure out what this is, you subtract your business deductions from your business income. However, do not subtract your Sec179 deduction, the deduction for 50% of self-employment tax, or any net operating losses you are carrying back or forward. The recaptured amount is equal to the difference between the amount you expensed, and the amount you would have been able to depreciate under the normal rules.
If you have a net loss for the year, you get no Sec 179 deduction for that year. If your net taxable income is less than the cost of the property you wish to deduct under Sec 179, your deduction for the year is limited to the amount of your income. Any amount you cannot deduct in the current year, you can carry forward and deduct the next year (or any other year in the future) I guess indefinitely. In addition to Sec 179, bonus deprecation can be used to currently deduct the cost of certain qualifying long-term business property. Unlike Sec 179, there is no annual dollar limit on the amount you can deduct using bonus depreciation and you need not use the property at least 51% of the time for business. However, the property must be new and placed in service in the year the deduction is claimed. You can use both of them or either one of them it is up to you,





Furthermore, would I still be able to deduct the full expense/depreciated value even if the purchase is financed over 18 months?==>no problem however, you can take a Sec 179 deduction for property you use for both personal and business purposes, as long as you use it for business more than half of the time. The amount of your deduction is reduced by the percentage of your personal use. You?ll need to keep records showing your business use of the property. If you use an item for business less than half the time, you will have to use regular depreciation instead and deduct the cost of the item over several years and alo need to recapture sec 179 deprecation that you took previously. You can use Sec 179 expensing only for property that you purchase?not for leased property or property you inherit or receive as a gift. You also can?t use it for property that you buy from a relative or a corp or an organization that you control. The property you purchase may be used or new. In late 2015, the U.S. Congress increased the limits for Section 179 deductions, increasing the limit permanently to $500k. Your business can spend up to a maximum of $2 million on Section 179 equipment. The deduction is reduced above this amount.
If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct.



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