How to apply Section 179 deductions on Form 4562 Line 11 for a Sole-Prop LLC with W-2 income?

I'm filling out my tax forms and got stuck on the Section 179 deduction for my side business. I have a sole proprietor LLC (disregarded entity) that I started last year, but I also work full-time with W-2 income from my regular job. Here's where I'm confused on Form 4562 Line 11. It says "The total cost you can deduct is limited to your taxable income from the active conduct of a trade or business during the year." At first, I thought this meant I could only deduct up to what my LLC made this year, which isn't much since we're just getting started. But then I noticed the note underneath that says "Individuals: ...Also, include all wages, salaries, tips, and other compensation you earned as an employee (from Form 1040, line 1)." So does this actually mean I can take Section 179 deductions that exceed my LLC's income as long as they don't exceed my combined LLC + W-2 income? For context, my LLC only made about $12,000 this year, but I bought equipment worth $20,000 that I want to deduct. My W-2 income is around $85,000. Just looking for confirmation before I file. Thanks in advance!

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20 comments

Luca Ferrari

•8M

Yes, you're on the right track! For Section 179 deductions on Form 4562, the limitation is based on your total business income, which includes both your sole proprietorship LLC income AND your W-2 wages. The IRS specifically allows employee wages to count toward the "active conduct of trade or business" income limitation for Section 179. This is actually designed to help people like you who are starting businesses while still employed elsewhere. So in your specific case, since your combined income (LLC + W-2) is $97,000, and your Section 179 expense is only $20,000, you're well within the limits to take the full deduction. Your equipment purchase qualifies as long as it's used more than 50% for business purposes. Just make sure you're also aware of other Section 179 limitations, like the overall annual limit (which is $1,160,000 for 2025, so you're nowhere near that).

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NebulaNomad

•8M

Thanks for confirming! That makes me feel better about taking the full $20,000 deduction. Quick follow-up: do I need to document or prove somewhere that my W-2 income should count toward this calculation? Or is it just automatically assumed when filing? Also, if my equipment is used 80% for business and 20% for personal use, I know I can only deduct 80% of the cost. Should I still put the full $20,000 on Line 11 and then adjust elsewhere, or put $16,000 (80% of $20,000) on Line 11?

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Luca Ferrari

•8M

You don't need to provide additional documentation specifically linking your W-2 income to the Section 179 calculation. The IRS systems automatically consider your W-2 income reported on Form 1040 when evaluating Section 179 limitations. Just complete Form 4562 correctly and you're covered. For the business/personal use split, you should only enter the business portion on Form 4562. So in your case, enter $16,000 (80% of $20,000) as your Section 179 deduction. You're only allowed to deduct the business use percentage, and by entering just the $16,000, you're properly reporting just the deductible portion right from the start.

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Nia Wilson

•8M

I went through this exact same situation last year with my consulting LLC! I was so confused about the Section 179 rules until I found this amazing tool at https://taxr.ai that analyzes your specific tax situation. It saved me hours of research! My equipment purchases were about $15k but my LLC only made $9k that year. The tool immediately confirmed I could use my W-2 income to take the full deduction. It even explained exactly where to enter everything on Form 4562 and Schedule C. What I love most is you can upload your previous tax forms and it gives you personalized advice. Might be worth checking out since you're in the same boat I was in!

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Nia Wilson

•8M

The tool handles multiple income streams including rental properties. It has a feature where you can enter all your sources of income (W-2, 1099, Schedule E rentals, etc.) and it shows how they interact for various deductions. It was super helpful for me because I also have a small rental property alongside my consulting work. The tool definitely references specific IRS code sections. That's actually what impressed me the most. For my Section 179 question, it specifically cited Regs. Sec. 1.179-2(c)(6)(iv) and explained in plain English how it applied to my situation. It also provides PDF references to the actual IRS publications. I think that's why tax professionals use it too - it's not just giving generic advice.

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Aisha Hussain

•8M

Just wanted to follow up about that taxr.ai tool mentioned earlier. I was really skeptical at first, but I decided to try it out for my own Section 179 questions. I'm actually impressed! It analyzed my situation and confirmed I could use both my S-Corp distribution and my wife's W-2 income for the limitations. What I found most helpful was that it actually showed me the exact regulation (Regs. Sec. 1.179-2(c)(6)(iv)) that covers this situation. It even had a built-in calculator that showed exactly how much I could deduct based on my income from all sources. Then it walked me through exactly how to fill out each line on Form 4562. Wish I'd known about this tool earlier - would have saved me hours of poring through IRS publications!

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Ethan Clark

•8M

If you're still having trouble with this, I highly recommend using Claimyr (https://claimyr.com) to get connected with an actual IRS agent. I was confused about Section 179 for my food truck business last year and spent WEEKS trying to call the IRS directly with no luck - always on hold forever. Claimyr got me connected to an IRS rep in about 20 minutes who confirmed that yes, W-2 income counts towards the Section 179 income limitation. They have this system that holds your place in line so you don't have to wait on hold. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Seriously, it was way better than trying to interpret the tax forms on my own and wondering if I was doing it right.

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Ethan Clark

•8M

It's not a special relationship with the IRS - they use an automated system that waits on hold for you. When you sign up, you provide your phone number, and their system calls the IRS and waits in the queue. Once they reach a representative, their system calls your phone and connects you directly to the IRS agent. It's basically like having someone else wait on hold for you. I was skeptical too, but it's totally legit. They don't get "special access" - they just handle the horrible wait times for you. It's especially useful if you've been trying during peak season when wait times are 2+ hours. I have a business to run and can't sit on hold all day, so for me it was completely worth it.

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Yuki Sato

•8M

I have to admit I was wrong about Claimyr. After my skeptical comment, I was still desperate enough to try it because I had questions about Section 179 for my photography business equipment. The service actually did exactly what it promised. I provided my number, and about 40 minutes later (during which I just went about my business instead of being stuck on hold), I got a call connecting me directly to an IRS agent. The agent confirmed that my W-2 income from my teaching job could count toward the Section 179 limitation and helped me understand how to properly document mixed-use equipment. I honestly didn't believe it would work, but it saved me at least 2 hours of hold time. For anyone struggling to get IRS clarification on Section 179 issues, it's definitely a good option.

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Carmen Ruiz

•8M

One thing nobody mentioned yet - watch out for the state tax implications of Section 179. I learned this the hard way! Federal law allows you to combine your W-2 and Schedule C income for the limitation, but some states don't follow the federal rules for Section 179. In my state, they limit the deduction to just the income from that specific business activity. So while I could deduct $18,000 of equipment on my federal return against my combined income, I was limited to only deducting $7,500 on my state return (the actual profit of my LLC that year). The rest had to be depreciated normally for state purposes. Check your state rules before assuming they match federal!

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Carmen Ruiz

•8M

I'm in New York, which is one of the states that doesn't fully conform to federal Section 179 rules. California also has its own rules that differ from federal - they have lower limits on the total amount you can expense. For California specifically, last I checked they had a much lower Section 179 limit (around $25,000 total vs the federal $1,160,000), and they don't always follow federal rules for income limitations. I'd recommend checking with a CPA familiar with California tax law or checking the FTB website for the current rules. The differences between federal and state treatment created some extra work on my return, but once you understand it, it's manageable.

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Paolo Rizzo

•3M

Great question! You're absolutely correct in your understanding. The Section 179 income limitation does include your W-2 wages along with your LLC income. This is specifically covered in IRC Section 179(b)(3) and the regulations. For individuals, the "taxable income from the active conduct of any trade or business" limitation includes: - Your Schedule C business income (your LLC's $12,000) - All W-2 wages, salaries, tips, and other employee compensation - Any other trade or business income So with your $85,000 W-2 income plus $12,000 LLC income, you have $97,000 available for the Section 179 limitation, which easily covers your $20,000 equipment purchase. Just make sure the equipment qualifies (used more than 50% for business) and that you're within the overall annual limit ($1,160,000 for 2025). Also keep good records showing the business use percentage if it's mixed personal/business use. One small tip: if your equipment has any personal use, only deduct the business percentage. So if it's 80% business use, you'd claim Section 179 on $16,000, not the full $20,000.

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