Q:

Subject: Sec.179 on S.Corp - Income Limitations

Kerry,

I came across your website while searching the web for a question I had related to Section 179.

Can an S.Corp. (single shareholder), claim a Section 179 expense deduction and flow it through to its shareholder for an amount in excess of the amount of taxable income given the fact that the shareholder is also claiming a salary form the S .Corp?

Example:

Shareholder salary from S.Corp $60,000

S. Corp net income before Section 179 $50,000

Section 179 Qualifying Property $100,000

Is the max deduction $$50K or $100K?

Thank you in advance for any insight you may have.

A:

This is the kind of thing that you should be working with your personal professional tax advisor on.  If you are trying to handle S corp taxes on your own, you are asking for big problems and will most likely end up paying a tax pro more to straighten things up after the fact than if you were to use his/her services from the beginning.

Your question is a good one for educational purposes.  The S corp taxable income limit for Section 179 purposes is the net bottom line with several adjustments.  One of those adjustments is adding back the W-2 wages paid to shareholder employees.  With your example, and assuming none of the other adjustments apply, that would mean that the full $100,000 could be deducted on the 1120S, which is then passed through to the shareholder via K-1. 

Your tax pro's tax prep software should be able to make the appropriate calculations of the applicable taxable income limitations.  I also found a very handy worksheet for this on Page 5-4 in the 2005 Depreciation QuickFinder Handbook.

Good luck.

Kerry Kerstetter

 

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 4/22/2006 11:32:00 AM Send this post: