If there is one thing every small business can get behind, it’s tax incentives and reducing their overall tax burden. The government makes a few incentives available to small businesses, and Section 179 is one of them. Although large businesses can also benefit from Section 179 or Bonus Depreciation, the original target of this legislation was tax relief for small businesses. Millions of small businesses have already taken action and have realized tangible benefits.
To see an example calculation of Section 179 for the 2019 tax year, check out Tax Deduction: Section 179
What is Section 179?
Section 179 is an IRS tax code that allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year 2019, up to $1,000,000.
The Section 179 Deduction was created to help small businesses to invest in themselves and purchase equipment. In the past, if a business spent $50,000 on a machine, it would get to write it off just $10,000 a year for five years through depreciation. With Section 179, instead of writing off equipment a little at a time through depreciation, business owners can write off the entire purchase price of qualifying equipment for the current tax year, which can save hardworking business owners a lot of time and headaches.
For this reason, businesses shouldn’t wait to take advantage of the Section 179 Deduction, as it can make a big difference for many companies.
What Kind of Equipment Qualifies for Section 179?
New and used equipment purchased and put into use in the 2019 tax year qualify for the deduction. Material goods that qualify include, but are not limited to, business equipment, business vehicles with a gross vehicle weight of 6,000 lbs or more, computers, “off-the-shelf” software, office furniture, and office equipment. Section 179 is taken on an item by item basis, so businesses do not have to use it on all eligible property bought during the year if they do not wish to do so.
Click here for a more comprehensive list of equipment that qualifies for Section 179.
Is My Business Eligible for Section 179?
All businesses that purchase, finance, and/or lease new or used equipment can be eligible for the Section 179 Deduction, as long as they have spent less than $3,500,000 in purchases during tax year 2019.
Limits to Section 179
The Section 179 Deduction was made for small- and medium-sized businesses, so the deduction begins to phase out on a dollar-for-dollar basis after a business has spent $2,500,000. A business becomes ineligible for the deduction once $3,500,000 in purchases is reached.
It’s important to note that the equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. This can be calculated by multiplying the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for Section 179.
How Can My Business Take the Section 179 Deduction?
To take the Section 179 Deduction, a business needs to fill out Part 1 of IRS form 4562, and attach it to their tax return.
- Section 179 is a tax code that was created to help businesses. Allowing businesses to deduct the full amount of the purchase price of equipment gives businesses an incentive to purchase, finance, or lease equipment.
- Section 179 can greatly help a business’s bottom line by deducting the full cost of equipment and thus substantially lowering the amount a business pays for equipment and/or software.
- To qualify for Section 179, all a business needs to do is purchase qualifying equipment. The equipment must have been purchased and placed into service by midnight, December 31st of the year you are taking the deduction for.
- Section 179 can change from year to year. For the past several years, Congress has raised the deduction limit, let higher limits expire, then raised them again, so there’s no better time to take advantage of this tax incentive than now.
DISCLAIMER: Currency does not provide tax, legal or accounting advice. The foregoing has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.