Get Creative (Electron) with Section 179
The Section 179 deduction is one of the most important tax codes you need to be familiar with. It lets you deduct all or part of the cost of equipment that is purchased or financed and put into place before year’s end. It’s a good idea to become familiar with this tax incentive so you can plan for your company’s future as it relates to capital equipment purchases.
Here is what you need to know – Section 179
• Current Deduction Limit – $1,160,000 – New or used equipment, including software. The equipment must be financed or purchased and put into service by the end of the year.
• Current spending cap is $1,160,000 your company is allowed to deduct the full cost of equipment purchased from this year’s taxable business income
• Bonus Depreciation is a tax incentive that allows a company to deduct a large percentage of eligible equipment purchased before the end of the year.
• A good way to get started is to talk with your tax advisor
How is this different from deductions for business equipment that have always been part of the tax code? Historically, the IRS allowed businesses to deduct the cost of equipment over a period of several years. In fact, they still do for equipment costs not allowed under Section 179. However, Section 179 allows you to deduct the entire cost in the year when you acquire the equipment.
Do I have to pay upfront for the equipment to get the tax benefits? No! This is the really great part. You can purchase the equipment, finance it, or lease it. Here is an example: Don C. needed $120,000 for a new X-ray machine to improve his productivity and get more customers. He successfully arranged to finance it for $1250 per month, starting in July. This means that by the end of the year, Don will have only paid $7500 for the equipment, but he can deduct the entire $120,000!