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Spouses’ incomes combined for Sect. 179

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in Small Business Tax,Small Business Tax Deduction Strategies

Question: My wife and I operate separate self-employed businesses. This year, I expect to show a big profit, so I plan on buying new machinery and tools before Jan. 1 that I can expense. My wife's business is likely to show a loss. Will her loss reduce the amount I can claim under Section 179? If so, what can I do about it? — C.S., Rochester, N.Y.

Answer: Obviously, you're aware of a potential tax trap for married couples under the Section 179 expensing allowance rules. The law says you can generally expense (i.e., currently deduct) up to $105,000 of qualified business assets that you place in service during 2005. But your Section 179 deduction can't exceed your taxable income from all your business activities. A husband and wife are treated as a single entity for this purpose.


For instance, if you had taxable income of $100,000 and your wife showed a $20,000 loss, your maximum Section 179 deduction allowed for the year is $80,000.


If you file separate tax returns, you can avoid the negative impact of your wife's business loss on the Section 179 deduction. But filing separately could create other adverse tax side effects. Ask your tax pro if filing jointly for 2005 is the right move for you.


Reminder: You can carry over any excess Section 179 deduction to the next year. So, you're not completely losing the tax benefit from 2005 acquisitions, even if your Section 179 write-off is limited.

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