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Financial Planning / Tax Strategies
|Subject: Re: Deductions for a second job||Date: 8/14/2001 12:49 AM|
|Author: acm4tax||Number: 53318 of 122858|
If your first year profits (not earnings) were $1000 you could use section 179 for $1000, no more.
Sec 179 deductions are limited to your "income". Income includes your W-2 income if you are filing a Sch C for your music business. Thus you could conceivably write off the whole $5000 in the year of acquisition.
But you should consider further whether you should take the Sec 179 deduction instead of just regular depreciation. You may need a larger write off in a subsequent year if you are close to moving up into a higher tax bracket. Thus saving some depreciation expense for a future year may make financial sense.
Or if, in a future tax year, you do find yourself not having enough time to devote to this music business because other obligations demand too much of your time, you may have to recapture some of the Sec 179 deduction. This would not be good especially if income from other sources increases significantly and puts you into another tax bracket in the year you cease to have a profit motive for your side business. Having to recapture some Sec 179 deduction may result in a tax bill higher than the money you saved in the year you took the deduction.
There are two schools of thought about taxes - one says take the most deductions that you can to save whatever taxes you can this year. The other looks at the whole picture, including future years, and considers the consequences of the choice you make for the current tax year with the potential effect in a future year. So in the end, you do have a decision to make.
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