Question

To compute E&P, IRC Section 179 deductions are deducted fully to arrive at E&P. Provide brief explanation.

	a.	True
	b.	False

Answer 1

False

Section 179 is an immediate expense deduction that business owners can take for purchases of depreciable business equipment instead of capitalizing and depreciating the asset. The Section 179 deduction can be taken if the piece of equipment is purchased or financed and the full amount of the purchase price is eligible for the deduction. Taking the cost of the equipment as an immediate expense deduction allows the business to get an immediate break on their tax burden whereas capitalizing then depreciating the asset allows for smaller deductions to be taken over a longer period of time. The Section 179 expensing method is offered as an incentive for small business owners to grow their businesses with the purchase of new equipment.

Section 179 expense deduction is limited to such items as cars, office equipment, business machinery, and computers. This speedy deduction can provide substantial tax relief for business owners who are purchasing startup equipment. The equipment must qualify for the deduction per the specifications within Section 179 of the tax code and the purchase price must be within the dollar amount ranges allowable by the code. The property must be placed in service during the tax year for which the deduction is being claimed. Equipment covered by the Section 179 deduction might also qualify for bonus depreciation, which further reduces the business owner's tax bill.

The maximum amount you can elect to deduct for most section 179 property you placed in service in tax years beginning in 2019 is $1,000,000, according to the Internal Revenue Service.