Sub S 179 Deduction

[Consultant]

I'll round the figures. Taxpayer has $88,000.00 of Sch. C Income. He received a K-1 for a Sub-S Corp
which he is 50% owner. Another firm prepared the Return.

Line 1 is $29.000.00; Line 11, 179 Deduction is $77,000.00. After entering ALL items correctly my
Drake Software calculates a loss of $48,000.00, eventually carried to the front page. Is this correct?
Isn't the 179 deduction limited to income? Can I pro-rate it on the Return? Is the Sch. C profit a factor?
Thanks

[TaxGuyBill]

Is there income in the other boxes of the K-1?

If not, I think the K-1 is wrong. The income limit is first applied at the corporate level. so if there is only $29,000 of income, the K-1 should only show $29,000 of Section 179.

[Rapid Robert]

I think the corporation's Sec 179 deduction income limitation includes compensation paid to shareholder-employees, so that could explain why Line 11 is greater than Line 1.

From Form 4562 instructions:

"S corporations. Enter the smaller of line 5 or the corporation's total items of income and expense described in section 1366(a) from any trade or business the corporation actively conducted (other than credits, tax-exempt income, the section 179 expense deduction, and the deduction for compensation paid to the corporation's shareholder-employees)."

[TaxGuyBill]

Great catch, I forgot about that.

Assuming that is the case, Drake is doing it correct. The limit for the deduction on the 1040 would include W-2 income and other business profit, such as Schedule C.