Tax Savings for Married Taxpayers Claiming Section 179 Deductions
If you are married, you need to know three special rules that can benefit your Section 179 deductions:
- The Section 179 business income limit includes W-2 income earned by both you and your spouse.
- Section 179 expensing treats you and your spouse as one taxpayer.
- If you and your spouse file separate returns, you need to make an overt election of how you are going to share your Section 179 deductions.
For Section 179, among other purposes, employees are engaged in the active conduct of the trade or business of their employment. Thus, wages, salaries, tips, and other compensation derived by a taxpayer as an employee count as income for the business income limit on Section 179 expensing.
Example. You have business income of $10,000 and qualifying Section 179 expenses of $90,000. Your spouse has W-2 income of $50,000. Your husband-and-wife business income limit for Section 179 expensing is $60,000 ($10,000 plus $50,000).
If you elect to expense the entire $90,000, you deduct $60,000 this year and carry the $30,000 excess over to next year, where it again enters into a Section 179 computation. You may carry over the excesses to any number of years, without limit.
Husband and Wife Are One Taxpayer
If you file a joint return, tax law treats you and your spouse as one taxpayer for purposes of applying the Section 179 limits.
If you and your spouse file separate returns, you must first treat yourselves as one person for Section 179 ceilings and limits. This is step 1.
Step 2 triggers the need for a decision. You and your spouse may elect how you want to handle the allocations in your tax returns. If you do not make a formal election, the law makes a 50/50 allocation for you and your spouse.
Example. You are married and place in service $65,000 of qualifying Section 179 property during the year. With elections on separately filed returns, you and your spouse may choose how to allocate the $65,000. You could take it all, give it all to your spouse, or take $55,000 and give $10,000 to your spouse. If you don’t choose, the law gives each of you $32,500 (half of $65,000).
Is you have Section 179 deductions that you would like to discuss, please contact me.