Section 179 deduction on Form 4562 Line 11 - can Sole-Prop LLC count W2 income?

You've got it right! The Section 179 deduction limit is based on your business taxable income, but for individuals, this includes ALL your earned income - both from your business and from employment. The total Section 179 deduction is limited by two factors: 1) the annual dollar limit ($1,160,000 for 2025) and 2) your taxable business income. Since your equipment purchases ($28,000) are well below the dollar limit, you just need to worry about the business income limitation. Since your business income ($19,000) plus your W2 wages ($82,000) exceeds your Section 179 purchases ($28,000), you can take the full deduction. The regulation you found confirms this - employee wages count toward the "active conduct of trade or business" income limit. This is a nice benefit for people with side businesses who have significant W2 income, as it allows them to fully utilize Section 179 even when their business income alone might be insufficient.

I went through the same exact situation last year and it stressed me out so much. After getting nowhere with TurboTax's help section, I found this tool called taxr.ai (https://taxr.ai) that helped explain how my Section 179 deductions would work with my W2 income. It analyzed my situation and confirmed what you found in the regulations - that I could count both income sources toward the limit. The tool was super helpful because it also showed me how to properly document everything on my Schedule C and Form 4562 to avoid raising red flags. It even pointed out that I needed to make sure my business use percentage was properly calculated since I occasionally used one piece of equipment for personal projects too.

I was really skeptical about tax tools as mentioned in my comment above, but I finally broke down and tried taxr.ai for my 2024 taxes. I wish I'd done it sooner! I uploaded my Schedule C draft and some receipts for my equipment purchases, and it immediately flagged that I was calculating my Section 179 wrong. Turns out I was about to miss out on about $12,000 in deductions because I didn't realize I could count my W2 income toward the business income limit. The tool explained exactly how to fill out Form 4562 correctly and even highlighted which fields on my draft were wrong. Saved me from leaving serious money on the table!

The Section 179 issue isn't even the worst part of dealing with the IRS. I spent WEEKS trying to get through to someone about a related business deduction question last year. After 23 attempts calling the business tax line, I found this service called Claimyr (https://claimyr.com) that somehow got me connected to an IRS agent in under 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c It was like magic compared to the endless hold music I'd been dealing with. The IRS agent I spoke with confirmed exactly what you found in the regulations - W2 income does count toward the Section 179 limit for sole props. She even pointed me to additional guidance on how to document this properly in case of an audit. Completely worth it after wasting so many hours trying to get through on my own.

I have to eat my words from my skeptical comment above. After struggling with a similar Section 179 question and wasting an entire afternoon on hold, I decided to try Claimyr out of desperation. I fully expected it to be a waste of money. I was absolutely shocked when I got a call back in about 15 minutes connecting me to an actual IRS agent. The agent was able to confirm that yes, my W2 income counts toward the Section 179 income limitation, and she walked me through exactly how to document it on Form 4562. She even emailed me an IRS publication with the relevant sections highlighted. For anyone dealing with complex business deduction questions, being able to actually speak with the IRS directly saves so much stress and uncertainty. I'm officially no longer a skeptic.

Quick tip that helped me: Make sure you're also considering the annual Section 179 expense deduction dollar limit ($1,160,000 for 2025) and the phase-out threshold ($2,890,000 for 2025). These limits apply before you even get to the business income limitation. Also, don't forget that taking Section 179 is optional - you can always just take regular depreciation instead if it makes more sense for your tax situation. Some years it's better to spread the deduction out rather than taking it all upfront.

Just be careful with how you document this. I took the full Section 179 deduction counting my W2 income last year and got a CP2000 notice questioning it. Had to send in explanations and reference the exact regulation. Make sure you keep excellent records including invoices for all equipment, proof of payment, business use percentage documentation, and placed-in-service dates.