Are you a business seeking to purchase or lease new furniture, technologies, machinery, or other equipment? If so, there is an incentive for you under Section 179. The tax benefit under Section 179 allows immediate tax deductions for qualified purchases. Specifically, the Tax Cuts and Jobs Act of 2017 allows businesses to make individual deductions of up to $1,000,000 for asset purchases capped at $2,500,000.
What are Section 179 Tax Benefits?
Section 179 allows small businesses to deduct depreciating asset values for qualified equipment within a year. In other words, instead of staggering the depreciation over the item's useful life, you can make a full deduction for the total purchase. For instance, let’s say you purchase all new computers for your employees, equating to about $40,000. In your tax filings, you can make an entire Section 179 deduction as long as it’s within the first year.
Which Business Assets Qualify?
1. Qualified property must be a tangible, depreciable, asset that has been acquired for active trade or business. Effective January 1st, 2018, land and buildings have been included.
2. The claimed asset must have been purchased and put into use within the year of the claim. This requires that the purchased equipment be actively involved in the business.
Section 179 Annual Deduction Limits
Section 179 Deductions Have Yearly Limitations:
1. For computer software or other equipment, the annual deduction limit for individual items is $1,000,000.
2. The total maximum tax benefits under the IRS policy is $2,500,000 annually, above which the deductions decrease.
Making Section 179 Deductions
How exactly will your business take advantage of this tax break? To begin, you must utilize the purchased assets within the year. The IRS Form 4562 is required when applying for the tax benefit. Next, disclose the purchase to your accountant or tax professional at the appropriate time. (Include information such as price, date, freight and set up costs.) Then, add up all the purchased assets that meet the requirements. Finally, conclude with making sure the total deduction is less than $2,500,000 and $1,000,000 respectively for individual items.
The Bottom Line
As long as you follow the above steps, these tax deductions will assist you in purchasing new equipment. If you’re looking to lease or buy machinery, office equipment, or new technologies, contact us for your complimentary quote.