A small business has a taxable income of $95,650 this year, and has purchased $1
ID: 2757038 • Letter: A
Question
A small business has a taxable income of $95,650 this year, and has purchased $118.450 of business equipment for a section 179 deduction. What is the maximum section 179 deduction that can be taken? Taking this deduction, what is the year 1 deprectiation for the equipment? what is the end-of-year book value? Use the MACRS rates listed below:
Year 1: 20% Year 2: 32% Year 3: 19.2% Year 4: 11.52% Year 5: 11.52% Year 6: 5.76%
What is the maximum sextion 179 deduction that can be taken? Taking this deduction, what is the 1 year deprectiation for the equipment?
Explanation / Answer
Maximum deduction under section 179 come with limits - there are caps to the total amount written off ($500,000 for 2015), and limits to the total amount of the equipment purchased ($2,000,000 in 2015). The deduction begins to phase out dollar-for-dollar after $2,000,000 is spent by a given business, so this makes it a true small and medium-sized business deduction.
Depreciation for year 1 for the equipment will = $118.450*20%
= $23.69
Therefore, Book value of the equipment will be= $(118.450 - 23.69)
= $ 94.76