When it comes to running a small business, one of the best ways to save money is through tax deductions. Many costs that come with running a business—renting an office space or incurring mileage from driving for work—are deductible.
This is where Section 179 of the Internal Revenue Code is particularly useful and beneficial for small businesses. This provision makes it easy for a small-business owner to recover the cost of certain business properties if they are deducted in the year they were purchased.
If you take advantage of the Section 179 tax benefit, you’ll be able to maximize your tax refund.
But what exactly is Section 179? How does it work, and what expenses does it cover?
Section 179 allows a business to take a depreciation deduction for certain assets (capital expenditures) in one year, instead of depreciating them over time. For example, if you buy a computer for your business, you can deduct the full cost of it in one year.
Instead of deducting a portion of the equipment cost each year, as you do under regular depreciation rules, you can get immediate full deduction. Additionally, you’ll be able to save money because you won’t have to pay for the property losing its value over time.
Properties that usually qualify under Section 179 are computers, furniture, vehicles, and machines. You want to be sure that any of the items you choose to deduct do not fall under the prohibited categories of the IRS. For more information on qualifying items under Section 179, read the full explanation on the official website.
You’ll also want to ensure that whatever you deduct under Section 179 has been purchased and put into service in the year you claim it. Keep in mind that there is a $50,000 maximum on individual items, and that your business can deduct a maximum of $2 million for equipment under Section 179.
As it is with any tax documents, it is crucial to use the Section 179 deduction properly. With all the deductibles and tax returns you can receive on your business expenses, it’s worth putting in the time to follow these steps.
You’ll have to start by purchasing the qualified property—and, as mentioned above, ensure that you use it during the year you are claiming the deduction.
The next step is to work with a tax professional. This will ensure that you get back as much money as possible with Section 179. You’ll want to keep records of everything related to your expense, such as the date of purchase, the date you began using the property, and any costs related to the purchase. Add up the costs of the different items, so that you’ll have a total amount to include in Section 179.
Then you will want to select Section 179, using the IRS Form 4562. This form is used to gather all the information related to business property acquired and used. While filling out this form, keep in mind the limits on individual items and maximum costs claimed under Section 179.
Be sure to read the complete IRS instructions to ensure you and your accountant are on the same page.
The bottom line is: Section 179 is beneficial to any small-business owner, and worth taking advantage of. In fact, the founder and CEO of Small Business Majority, John Arensmeyer said, “It’s one of the most immediate, tangible things most small businesses do in some form. It has a very immediate benefit for them.”
We here at Currency agree — after all, we care and support small businesses. We believe this is one of the best ways for you maximize your tax refund so you can focus and reinvest in your growing business. If you’re interested in finding an equipment to take advantage of the Section 179 deduction for your business, reach out to the Currency team today.