It generally makes sense to write off eligible equipment using the Section 179 expense option in the year of purchase. You’ll get the tax deduction faster than if you took depreciation over time. However, expensing may not make sense if you’re in a low tax bracket in the year of purchase but expect to be in a higher bracket in future years, or if your new sole proprietorship is not making enough to trigger self-employment tax.
While the depreciation deductions may be spread out over time, if you’re in a higher tax bracket or paying self-employment tax, the deductions will be worth more. You’ll have to crunch the numbers and consider the time-value of money to be sure. Keep in mind that you don’t have to write off the entire asset. If a machine cost $5,000, you can claim the Section 179 expense option on $2,000 and take regular depreciation over time on the remainder.
The below information is taken directly from the Internal Revenue Service website.
It is important to keep good records for property you depreciate. Do not file these records with your return. Instead, you should keep them as part of the permanent records of the depreciated property. They will help you verify the accuracy of the depreciation of assets placed in service in the current and previous tax years. For general information on recordkeeping, see Publication 583, Starting a Business and Keeping Records.
You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. This is the section 179 expense deduction. You can elect the section 179 expense deduction instead of recovering the cost by taking depreciation deductions.
This part of the chapter explains the rules for the section 179 expense deduction. It explains what property qualifies for the deduction, what property does not qualify for the deduction, the limits that may apply, how to elect the deduction, and when you may have to recapture the deduction.
For more information, see chapter 2 of Publication 946.