Message Font: Serif | Sans-Serif
No. of Recommendations: 0
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.

Best wishes
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.