What is the Section 179 Tax Deduction?
Most people thing the Section 179 deduction is some mysterious or complicated tax code. It really isn’t, as you will see below.
Essentially, section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means if you purchase a printer package, you can deduct the FULL PURCHASE PRICE from your gross income, resulting in a lower tax obligation. It’s an incentive created by the U.S. to encourage businesses to buy equipment and invest in them.
Today, Section 179 is one the few incentives included in any of the recent Stimulus Bills that actually helps small businesses. Although large businesses also benefit from Section 179 or Bonus Depreciation, the original target of this legislation was much needed tax relief for small businesses – and millions of small businesses are actually taking action and getting real benefits.
Section 179 works like this:
When your business buys a printer package it typically gets to write off a little at a time through depreciation. In other words, if your company spends $50,000 on a printer, it gets to write off $10,000 a year of 5 years (these members are only an example). 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 buy it.
In fact, if a business could write off the entire amount, they might add more equipment this year instead of waiting over the next few years. That’s the whole purpose behind Section 179 – to motivate the American economy and your business to move in a positive direction. For most small businesses, the entire cost can be written off the 2017 tax return (up to $500,00).
What’s the difference between Section 179 and Bonus Depreciation? Bonus Depreciation is offered some years and some years it isn’t. In 2017 it’s being offered at 50%.
The most important difference is both new and used equipment qualifies for the Section 179 deduction (as long as the used equipment is new to your business). Bonus Depreciation only covers new equipment.
Bonus Depreciation is useful for large businesses spending more than the Sections 179 spending cap (currently $2,000,000) on new equipment. Also, businesses with a net loss are still qualified to deduct some of the cost of new equipment and carry forward the loss.
When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business had no taxable profit, because the unprofitable business is allowed to carry forward to future years.
The equipment or 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 printer or software by the percentage of business use to arrive at the monetary amount eligible for Section 179.
This is a link to the IRS website for your convenience: http://www.section179.org/section_179_deduction.html
Click here to schedule an appointment with one of our friendly and knowledgeable staff as we guide you some of the most asked about questions on how this Federal program can help you.