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
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.
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.
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.
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.
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.
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.