Understanding Section 179 Tax Deduction for Small Businesses
If you don’t know about the Section 179 tax deduction, you’ll want to keep reading. Codified decades ago, this tax write-off offered one of the best ways to meet your small business objectives and save money on your tax bill.
Using equipment, software, vehicles, and other large-scale property to help improve your business operations can get expensive. The less you pay in taxes, the more can you invest in the growth of your small business.
Tax law is always in a state of flux. Read on to learn about the most current criteria and benefits of this tax-saving provision.
What is Section 179 Deduction?
Section 179 is a tax deduction established in 1958 for the benefit of small businesses. Its purpose was to encourage small business investment in specific categories of goods that would improve their bottom line, as well as reduce their tax burden. According to the IRS code, qualified businesses “are allowed to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year.”
When first written, the Section 179 tax deduction was limited to $10,000. The Tax Cuts and Jobs Act of 2017 (TCJA) made many changes to the US tax code, including the Section 179 deduction. The list of eligible purchases was expanded. Additionally, the exemption and purchase price caps were increased. Moreover, you can deduct the full purchase price of any equipment that you buy from your gross income.
A standard write-off requires you to spread the depreciation over several years. However, the Section 179 tax deduction enables you to take the entire write-off in one year.
Upgrading your equipment and technology is critical to your ability to remain competitive in the marketplace. Yet, the price tag often means that you’ll need to delay these purchases. This deduction makes it easier to fit these investments into your operating budget.
Section 179 Deduction Limitations And Rules
In order for there to be a write-off, at least 50% of the equipment’s usage must be benefiting the business.
Qualifying equipment and software include:
- Computers and computer software (doesn’t include custom-designed software)
- Office furniture
- Business equipment and machinery
- Business vehicles
- Qualifying property can’t have been previously used by you, nor can it be purchased from family or a charity. The property must be tangible. Buildings and land won’t qualify, but any equipment or technology systems attached to a building will qualify
There are two categories of limitations under Section 179: income limitation and investment limitation.
- Investment limitation: Its 2019 spending cap on equipment purchases is $2.5 million. The 2019 deduction is capped at $1 million. Additionally, the 2019 bonus depreciation is 100%
- Income limitation: The total of 179 deductions that you claim can’t exceed your total taxable income, including salaries and wages. For example, if your total business taxable income is $100,000 and qualified expenses total $150,000, your write-offs are limited to $100,000. However, you do have the option of carrying the uncovered $50,000 forward into the next year
How to Determine The Tax Obligation of Your Loan
The tax law is complicated. It’s highly recommended that you consult with experienced tax attorneys or accountants. The practitioners will help you navigate the rules and strategies for tax-saving.
Working with lenders such as QuickBridge and National Funding will empower you to take full advantage of the Section 179 deduction. Their online platforms include an explanation of how it works. Additionally, the sites offer an easy to understand tax savings calculator. This provides you with hard numbers to help you determine the impact of your equipment purchase loan on your bottom line and on your tax obligation.
Alternative lenders offer a simple online application form. Decisions on whether to approve your application are made quickly. The funds you’ll need are available right away upon approval. This enables you to take advantage of purchase savings and investments. Online lender specialists will also answer all your questions and help you select the best financing option.
The Section 179 tax deduction was written for your benefit. Subsequent changes to the tax law were designed to improve your ability to save money on your tax bill. Consult with qualified professionals to help you correctly apply for the deduction. Moreover, take advantage of online lenders that are well-versed in Section 179 limitations.