The original target of this legislation was much-needed tax relief for small to medium-sized businesses. Fundamentally, Section 179 of the IRS tax code authorizes businesses to deduct the full purchase price of qualifying equipment and software purchased or financed during the current tax year. Meaning, if you buy (or lease) a piece of qualifying equipment, you may be eligible to deduct the FULL PURCHASE PRICE from your gross income. Depending on the property involved, to fully depreciate the cost could take anywhere from three to twenty years. Section 179 allows your business to accelerate growth by rewarding those willing to invest in themselves.
Small to Medium sized businesses that purchase, finance, or lease new or used business equipment during the 2018 tax year may qualify for the Section 179 Deduction (assuming equipment purchases are less than $2,500,000).
Most tangible goods used by American businesses, including software and business use vehicles (restrictions apply), qualify for the Section 179 Deduction. In 2018, building improvements such as roofs, HVAC, fire protection systems, alarm systems and security systems became eligible as well.
For basic guidelines on what property encompasses the Section 179 tax code, please contact your tax advisor. Also, to qualify for the Section 179 Deduction, the equipment and software purchased or financed must be placed into service between January 1, 2018, and December 31, 2018.
This deduction is good on new and used equipment (as long as it’s new to the purchaser), as well as off-the-shelf software. To take advantage of the deduction in the tax year 2018 the equipment financed or purchased must take place and be put in use between January 1, 2018, and the end of the day on December 31, 2018.
Once your company reaches the maximum dollar amount allowed on equipment the Section 179 Deduction available to you begins to reduce on a dollar for dollar basis. This spending cap makes Section 179 a true "small business tax incentive" because larger businesses that spend more than $2.5 million on equipment start losing the deduction.
Previously bonus deprecation was cut off at 50% for only new equipment and software. Recent modifications to the existing tax rules now allow all businesses to deduct 100% of new or used tangible personal business property and software that have a useful life of 20 years or less and not obtained through inheritance or a gift.
|First year write off||$1,000,000 (maximum write off amount in 2018)|
|100% Bonus 1st Year Depreciation||$250,000 (updated to 100% via Tax Cuts and Jobs Act)|
|Total First Year Deductions||$1,250,000 ($1,000,000 + $250,0000)|
|Cash Savings||$437,500 ($1,250,000 x 35% assumed tax bracket)|
|Equipment Cost after Tax||$812,500 (assuming a 35% tax bracket)|
Combining the Section 179 Deduction with an Equipment Lease might be the most profitable decision your business will make this year.
How? Because in most cases the taxes dollars saved with the deduction will exceed your cash outlay for the year when you combine (I) a properly structured Equipment Financing and (II) take full advantage of the Section 179 deduction. It is a bottom-line enhancement tool that allows you to add new equipment, vehicles, and software to your business, and conserve the most valuable resource, cash.
*We advise all business owners to speak with an Accountant or Tax Advisor regarding how this information applies directly to their business.