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Instructor Blog - Credit College - Taxes

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The Section 179 Deduction (#2 in series)


  • admin

  • 7/24/2019 4:59:35 PM

  • 39

  • Credit College - Taxes

Q: How did you arrived at net income of $585,058 at Line 1 on Schedule M-1 when ordinary income is reported as $608,995 at Line 21 on Schedule 1120S?

A: The $585,058 reported at Line 1 on Schedule M-1 is the company's reported net income on an accrual basis. The $608,995 reported at Line 21 on Schedule 1120S is greater by $23,937, which reflects the fact that book depreciation expense reported on the accrual income statement was greater than taxable depreciation expense reported on Schedule 1120S. Note that Line 3 on Schedule M-1 reports $23,937 of depreciation expense reported on books – on the accrual income statement – but not included on Schedule 1120S, which is carried to Line 1 on Schedule K.

Q: Please explain threshold cost on Form 4562.

A: If a company places qualified assets in service that exceed the threshold cost stated at Line 3 on Form 4562, each dollar in excess of the threshold cost reduces the dollar amount of assets that are eligible for the Section 179 Deduction.

In 2015 the threshold cost was $2,000,000. In 2018 and beyond it was raised by Congress to $2,500,000.

In the case of Sandover, the applicable threshold cost was $2,000,000 while qualified assets were only $264,984. Therefore, Sandover could claim the full $264,984 of qualified assets for the Section 179 Deduction.

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