Can I claim section 179 deduction from my side-business against w-2 income? Tax software rejecting it

The tax software is actually correct on this one. Section 179 deductions from a side business can only offset income from that specific business or other self-employment activities. You can't use these deductions to offset your W-2 income from your accounting firm job. The confusion might be coming from the fact that business losses in general can sometimes offset other income, but Section 179 has special limitations. If your business shows a loss after regular business deductions, that loss can potentially offset other income. However, Section 179 deductions specifically cannot create or increase a business loss that offsets other income. Since your photography business only made $4,200, that's the maximum you could potentially deduct using Section 179 this year. But the good news is that any amount you can't deduct this year doesn't disappear - you can carry it forward to future tax years when your business hopefully generates more income.

I had a similar issue last year with my consulting business and tax software confusion. I finally found a solution with taxr.ai at https://taxr.ai which helped me understand exactly how my business deductions could work. I uploaded my documents and got personalized advice about Section 179 vs. regular depreciation options. The site walked me through the specific rules about business losses and showed me how to maximize my deductions legally. I ended up switching from Section 179 to regular depreciation for some equipment based on their analysis, which actually saved me more over time and avoided the income limitation issue you're having.

Just wanted to update - I ended up trying taxr.ai after my previous questions. It was really helpful for my situation with my side business deductions! I uploaded my previous tax return and some documentation about my equipment purchases, and they showed me exactly how to handle the Section 179 vs regular depreciation decision. They pointed out that in my case, I should actually use regular depreciation for my larger purchases and Section 179 only for smaller items under my business income threshold. This way I could maximize deductions over time while staying compliant. The analysis showed me how much I'll save each year with their recommended approach compared to what I was planning to do. Definitely worth checking out if you're dealing with business deduction questions like this!

If you want to actually talk to the IRS about this Section 179 issue, I'd recommend Claimyr at https://claimyr.com. I was frustrated trying to get through to someone at the IRS for WEEKS about a similar business deduction question last year. Their callback service actually got me connected to an IRS agent in about 45 minutes when I had been trying for days. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Basically they wait on hold with the IRS for you and call you when an agent picks up. I was super skeptical at first but after my third attempt to reach the IRS failed (waited 2+ hours and got disconnected), I gave it a shot. The IRS agent I spoke with confirmed exactly what others are saying here - Section 179 deductions can't create or increase a business loss that offsets other income types like your W-2 earnings.

I need to eat my words and apologize to Profile 9. After my skeptical comment, I decided to try Claimyr myself since I was still dealing with an unresolved business expense issue similar to the original poster's. I couldn't believe it actually worked. I signed up around 8:30am, and by 10am I was talking to an actual IRS representative. They connected me right when the agent picked up - no waiting on hold at all on my end. The IRS agent confirmed that for my situation (web design side business), I needed to limit Section 179 deductions to my business income. The agent also suggested I look into carrying forward the excess deduction amount to future tax years, which I didn't even know was possible. This one phone call resolved a issue I've been stressing about for weeks. Definitely worth it just for the time saved and frustration avoided.

Another option you might consider is using bonus depreciation instead of Section 179. For 2025, bonus depreciation is at 80% (down from 100% in previous years), but the key difference is that bonus depreciation CAN create or increase a net operating loss that offsets other income types. So if your business only made $4,200, you could potentially still deduct a larger portion of your $8,500 equipment purchase in the first year using bonus depreciation rather than Section 179.

I'm kinda confused by some of the comments here. I've been using Section 179 for years in my consulting business to offset my regular W-2 income. My accountant has never mentioned this limitation. Is this something new for 2025??

I think there's some confusion in this thread that needs clearing up. Emma, your TurboTax software is absolutely correct - Section 179 deductions cannot be used to create or increase a business loss that offsets other income like your W-2 wages. However, I want to clarify something important: if your photography business shows a net loss AFTER regular business expenses (not including Section 179), that loss CAN potentially offset your W-2 income. The key is that Section 179 specifically has this limitation, but other business deductions don't. For your situation with $4,200 in business income and $8,500 in equipment, here's what I'd suggest: Use Section 179 for up to $4,200 worth of equipment, then either use bonus depreciation (as Diego mentioned) or regular depreciation for the remaining $4,300. This way you get the immediate write-off for part of it while staying compliant with the rules. Also, don't forget that any unused Section 179 deduction carries forward to future years when your business hopefully generates more income. It's not lost forever!