Warning: we’re about to talk about taxes.
Drowsiness may occur.
Unless you work for the IRS or are a CPA, taxes aren’t a particularly entertaining topic. Very few people enjoy talking about taxes, let alone paying them. But we do like to talk about saving money, don’t we? With the Section 179 deduction you can do just that.
Tthe deadline to apply for a Section 179 tax deduction is fast approaching, New Years Eve of 2016. Time to consider those end-of-year purchases, for sure.
What is Section 179?
Section 179 allows a business to deduct the full purchase price of equipment and off-the-shelf software. Qualification for Section 179 is determined by three primary factors: when the equipment is placed into service (it must be during the same year that you file for the deduction), by the price of the equipment/software and, lastly, whether or not a business uses the equipment/software at least 50% of the time.
Whether you buy your equipment new or used doesn’t impact your qualification. What if you financed the purchase? Still eligible. So long as the price, service date and usage fit under these parameters you may be eligible for the Section 179 deduction.
How does it work?
Are you asking yourself what’s the difference between writing off a typical business expense and Section 179? The key difference is depreciation and amount.
Hypothetically, say you buy a piece of equipment for $25,000. Typically you would write off $5,000 for five years in the form of depreciation. With Section 179, you would write off the entire $25,000 purchase the year that you buy it – which can really help cash flow and potentially your tax picture.
Awesome, so I can write off as many purchases as I want?
Not so fast, Section 179 has restrictions.
Like most of the convoluted and pesky intricacies of the American tax code, the limits for Section 179 aren’t set in stone and are adjusted annually. A qualified purchase last year or in years past might not qualify in 2016. Typically this is due to legislation such as stimulus acts and various economic considerations.
For 2016 the write off ceiling is $2,000,000, which makes Section 179 most applicable for small and mid-sized businesses.
How much will I save?
Below is a sample calculation that will give you an idea of how beneficial Section 179 can be for your bottom line.
Which types of businesses are eligible?
So long as you meet the major three qualifications (price, service date and usage) all businesses are eligible. Whether you’re buying a company car for sales, a new group of computers for IT, or a new grill for your on-the-move hot dog stand, you could be eligible for tremendous benefits of Section 179. For a full list of eligible equipment, visit Section 179’s official site here.
So now that you know how Section 179 works, make sure you get your deduction filed in time!
We are not tax professionals, and this should not be construed as advice of any kind. We provide this for informational and inspirational purposes only. Please consult your own tax adviser before making any tax-related decisions. Please consult IBS if you need help figuring out what IT-type stuff you might need before end of year. 🙂