No one is a big fan of the IRS. They come around each year with their hand out to take a portion of your hard-earned money. We all know that business growth and scalability can be an uphill battle when you have tax season looming. Cut them a little slack! They did create Section 179 for business owners just like you, making your investments a catalyst for growth.
If you’ve been keeping up with our blogs this month, you’re aware that we’re focusing on Section 179 Tax benefits for business owners. Some of the feedback we’re getting tells us that many of you want some specific information on what qualifies as deductions. Well, keep reading, and we’ll take a deep dive into section 179 tax deductions.
What is Section 179?
This tax deduction is available to SMBs that purchased qualifying equipment during the current tax year rather than depreciating it over time in future tax years. Eligible businesses can write off the entirety of those purchases (up to one million dollars). For example, if you purchased $100,000 in new computers, software, and office furniture, you’ll write that off when you file this year’s taxes. Keep in mind that this deduction is not part of your standard tax preparation. You will need to elect to claim that property and fill out an additional tax form. Fill out Part 1 of IRS form 4562, and attach it to your tax return to elect the Section 179 Deduction. And remember, it is always a good idea to have your tax professional confirm the deductions you can take.
What is considered qualifying equipment?
This area is where Uncle Sam has your back. Just about all tangible business equipment will fall into the write-off category. Also, it doesn’t have to be brand new (just new to you). The items can be brand new, used, leased, or even financed. You must ensure that the purchase was within the tax year. More often than not, SMB’s purchase needed equipment throughout the year, so this deduction encourages businesses to keep doing so. The following items qualify by IRS.gov.
- Equipment (machines, etc.) purchased for business use
- Tangible personal property used in business
- Business Vehicles with a gross vehicle weight above 6,000 lbs.
- Computer “Off-the-Shelf” Software
- Office Furniture
- Office Equipment
- Property attached to your building that is not a structural component of the building (a printing press, large manufacturing tools, and equipment)
- Certain improvements to existing non-residential buildings: fire suppression, alarms and security systems, HVAC, and roofing.
Why elect to take the deduction?
When the IRS throws you a bone, you take it! Section 179 has expanded over the years, going from $250,000 in 2012 to $1,050,000 for the current tax year. It is sure to grow in the coming years as well. The law is meant to encourage economic growth and smart investments in SMBs. Section 179 is utilized on an item-by-item basis, so you don’t have to claim it for all qualifying equipment if you prefer not to. One other interesting point is that this section is now amended to include more flexibility. Initially, you were not allowed to claim Section 179 for previous tax years. However, you can amend and elect Section 179 if you previously did not for tax years beginning after 2007 through the current year. This deduction has many benefits that could be a potential solution for all kinds of SMBs.
The good news is there are other options available from the IRS if this doesn’t offer an advantage to your business. One option is the Modified Accelerated Cost Recovery System, known as MACRS. When you select this option, it takes your property and depreciates it over a certain number of years. It might be a little more complicated, but if your accountant is on top of your books, it shouldn’t be difficult to figure out.
It’s important to investigate these items now and begin preparing for tax time. Take advantage of these things and put your business in line for success. And even though we are not tax experts, we do have experience helping businesses find qualified deductions. Contact us today and let’s set up a meeting!