Section 179 is not as complicated as some people think. Businesses are allowed to deduct the full purchase price of equipment and software purchased or financed… during the tax year. For example, if you buy or lease a piece of qualifying equipment, you can deduct the entire purchase price from your gross income this year. The government created the incentive to encourage businesses to buy equipment and invest in their future. Today Section 179 is beneficial to small businesses more than ever! Section 179 is one of the few government incentives available to small businesses and has been included in many of the recent Stimulus Acts & Congressional Tax Bills. The main target of this legislation was much-needed tax relief for small businesses.
Here’s How Section 179 Works
Several years ago, when your business purchased equipment, it usually wrote it off a little at a time through depreciation. For example, if your company spends $50,000 on a machine, it gets to write off around $10,000 a year for five years. While it’s true that this is better than no write off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they acquired it. That describes what Section 179 does. It allows your business to write off the entire purchase price of qualifying equipment for the current tax year. This makes a difference for many companies. Businesses have used Section 179 to purchase equipment needed instantly, instead of waiting. Most small businesses entire cost of qualifying equipment can be written off on the 2019 tax return.
What Is The Difference Between Section 179 And Bonus Depreciation?
The difference between Section 179 and Bonus Depreciation is bonus depreciation is offered some years, and some years it isn’t. In 2019, it’s being offered. Important differences include: both new and used equipment qualify for the Section 179 Deduction, while Bonus Depreciation has been limited just to new equipment. Things are now different from the recent years. The bonus depreciation now includes used equipment. Bonus Depreciation is very useful to very large businesses spending more than the Section 179 spending cap, which is $2,500,000 on new capital equipment. Businesses with a new loss are still qualified to deduct some of the cost of new equipment and carry forward the loss. Section 179 is generally taken first when applying these provisions, and then followed by Bonus Depreciation unless the business had no taxable profit, because the unprofitable business is allowed to carry the loss forward to future years.
Section 179 50% Usage Rule
There are many advantages financing of equipment in Section 179. The deduction is calculated to be full cost of the equipment purchased in the fiscal 2019. Instead of paying the maximum amount of taxes this year, you can buy equipment, and instead of paying Uncle Sam your tax dollars, you can acquire a piece of equipment on a long term lease, that in turn, increase ROI. Its win-win for every business owner. You can write off the entire cost of the equipment!
Did you know that your company can lease equipment and still take full advantage of the Section 179 deduction? The main benefit of a non tax capital lease is that you can still take full advantage of the Section 179 Deduction, yet make smaller payments. With a non-tax capital lease you can acquire and write off the deductible limit of equipment this year, without actually spending that amount this year.
Whether you finance or lease the equipment, the Section 179 deduction is a great incentive for business owners to buy equipment instead of rent it. The costs of renting equipment for your business heavily outweighs the cost of financing equipment over a long term. So consider financing or leasing some new or used equipment, and use Section 179 as a way to mitigate the total finance cost.
Limits Of Section 179
Section 179 does come with a limit. There are caps to the total equipment cost that would be eligible. This pertains to the entire fiscal year of 2019. The rule limits the total amount of the eligible equipment purchased to be $2,500,000. The deduction begins to phase out on a dollar-for-dollar basis after $2,500,000. This is the only real downside to Section 179- the fact that there is a cap to the dollar limit that qualifies. But for most small businesses, this allowance can satisfy their need for a large deduction. In turn, this deduction opportunity encourages the purchase of equipment, businesses grow, and the economy benefits.
Leasing & The Advantages
Equipment, including vehicles, and software, must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment, by the percentage of business use, to arrive at the monetary amount eligible for Section 179.
