Need accounting help with an income tax essay question

timer Asked: Nov 29th, 2015
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Question Description

How are 179 deductions handled on the partnership tax return? Are they included in ordinary business income? Or are they only separately stated? 

Tutor Answer

School: New York University

Thank you for the opportunity to help you with your question!

Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the the full price from your gross income. It's an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves.A partnership filing Form 1065 .. is not required to file the Schedule M-3 in the section 179 expense deduction; this amount must be separately stated. ... Enter any other trade or business income (loss) not included on lines 1a through 6. .... The partnership may use tax-basis amount or apply the rules in Regulations section 1.704-1(b)(2)(iv) to determine the partners' capital accounts in Schedule M-2. If the beginning and ending capital accounts reported under these rules differ from the amounts reported on Schedule L, attach a statement reconciling any differences... $200,000 is the maximum amount that can be spent on equipment before the Section 179 Deduction available to the company, the begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true "small business tax incentive".

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