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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
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Experience:  Extensive Experience with Tax, Financial & Estate Issues
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The instructions 4562 Depreciation and Amortization, line

Customer Question

The instructions for Form 4562 Depreciation and Amortization, line 11, state that for"Individuals" "Also include all wages, salaries, tips, and other compensation you earned as an employee (from Form 1040, line 7)."
Does this mean, as a sole proprietorship that I can add the wages I earned into my sole proprietorship income in order to raise the amount that I am eligible to claim for depreciation expense for my sole proprietorship?
Submitted: 10 months ago.
Category: Tax
Expert:  rakhi.v replied 10 months ago.

Dear Friend,

Hello and welcome. Thank you for providing an opportunity to assist you.

YES -- That includes your income from Sole Proprietorship as well.

However, note that your section 179 deduction stands restricted.

Regardless of the deduction amount, you must apply the limitation that restricts the Section 179 deduction to the extent of your business profits (called “taxable income” without regard to certain deductions) for the year. The limitation – your net earnings from self-employment for sole proprietors or net profit for other business entities – is entered on line 11. If you had any Section 179 deduction disallowed last year because of this business income limitation, the carryover is entered on line 10; if any part of this year’s deduction cannot be used because of the limitation
will be entered on Line 13.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

Customer: replied 10 months ago.
I do not feel this response answers my question: On Line 11 of the Form 4562 Depreciation and Amortization, can you add both the income from the wages and salaries on line 7 of the 1040 plus sole proprietorship income from your business as stated on Schedule C?
Expert:  rakhi.v replied 10 months ago.

Dear Friend,

Let me say it again. I think there is some confusion.

YES -- You can include ALL incomes here including salaries and wages. Please refer the following IRS document.

https://www.irs.gov/instructions/i4562/ch02.html#d0e699

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

Customer: replied 10 months ago.
I do not feel that I can rely on the answer you provided because the instructions for Line 11 also state, "Note. If you have to apply another Code section that has a limitation based on taxable income, see Pub. 946 for rules on how to apply the business income limitation for the section 179 expense deduction." This sentence is prior to the section that starts with "Individuals" which states that you can add wages to the depreciation calculation, so I'm wondering if you have to be able to apply another Code section in order to add wages into the amount of depreciation that you can deduct?
Expert:  rakhi.v replied 10 months ago.

NO, I am sure you need not apply any code.

However, I am opting out and see if anyone else is able to assist you with this.

But, from the information I have, I am sure about my answer.

Your satisfaction is utmost important to us. I wish you good luck.

Warm Regards,

Expert:  Stephen G. replied 10 months ago.

Another expert here.............perhaps I can assist............................

You stated:

"I do not feel that I can rely on the answer you provided because the instructions for Line 11 also state, "Note. If you have to apply another Code section that has a limitation based on taxable income, see Pub. 946 for rules on how to apply the business income limitation for the section 179 expense deduction." This sentence is prior to the section that starts with "Individuals" which states that you can add wages to the depreciation calculation, so I'm wondering if you have to be able to apply another Code section in order to add wages into the amount of depreciation that you can deduct?"

To respond to your above comment/question where your question is embedded:

"I'm wondering if you have to be able to apply another Code section in order to add wages into the amount of depreciation that you can deduct?"

The answer to that is definitely no. The comment you are referring to relates to another possible deduction subject to the income limitation, such as a charitable contribution, which is the example the IRS gives. It's not another code section to satisfy before including salaries & wages in the computation of the business income limitation. The example they give is a equipment expenditure of $520,000, and a charitable contribution of $20,000., with taxable income limitation of $520,000. If the maximum $500,000, 179 deduction is claimed, then the income limitation drops by $500,000., to $20,000. for purposes of the Charitable Contribution deduction. Since that is limited to 10% of net taxable income, the charitable contribution is reduced to $2,000., and $18,000. of the Charitable Contribution is carried over. (The other $20,000. of equipment would be subject to depreciation). So, it doesn't refer to any requirement for inclusion of Salaries & wages in the business income limitation.

Hope this helps clear it up for you.

Steve G.