A lot of small business owners are familiar with the small business tax deductions that can help you save money at tax time, but did you know about Section 179?
This tax deduction expands to a deduction limit of $1,000,000 level and is permanently at this level until further notice. This tax break for small businesses is intended to make it more affordable for small companies to buy business equipment, such as office furniture, vehicles, computers, machinery and other tangible capital investments, by allowing businesses to deduct up to $1,000,000 per year in qualifying business equipment purchases from their taxable income.
Section 179 is not new but the levels and availability of this tax deduction has fluctuated over the years. When first introduced, Section 179 deductions had an annual limit of just $10,000. Congress kept raising the limit year after year, but then in January 2015, the limit dropped from $500,000 to $25,000. It was later returned to the $500,000 limit and with the passage and signing of the H.R.1 law (The Tax Cuts and Jobs Act), the deduction limit was increased to $1,000,000 in January 2018.
In the past, businesses were allowed to deduct the value of eligible business equipment purchases but could only deduct a portion of the purchase’s value each year. Now, Section 179 allows your small business to deduct the full value of certain business equipment purchases in the same tax year that the purchases were made. This alleviates the pain of depreciating (or deducting the amount in portions) on a year-by-year basis over the useful lifetime of the equipment.
This can be a huge advantage for your small business! It can potentially reduce your taxes by larger amounts each year and no more waiting several years to get those full tax benefits of your equipment purchases.
What qualifies for Section 179?
Section 179 deductions can be used for tangible personal property purchased for your business that the IRS has determined will last more than one year. The types of property include:
- Computers
- Software
- Office furniture
- Business equipment
- Machinery
- Business vehicles (weighing more than 6,000 pounds)
You can also apply this new or used property that you purchase from another party. Any property you purchase for your small business must be used at least 50 percent of the time for business.
Here are some examples of things that you will not qualify for the deductions:
- Any property you might inherit, obtain from an organization you control or can purchase from a relative
- Any personal property converted to business property that is used less than 50 percent of the time on business needs
- Land and permanent structures
- Furnaces or air conditioning units
- Any property meant for use outside of the U.S.
- Intangible property such as copyrights or patents
Upgrading your software has never been more affordable and now is the time to get in touch with our office. Our Purchasing/Client Concierge, Jamie Moyer, will be happy to speak with you about your options and we’ll make sure your business is upgraded and ready to take on a new year!
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DISCLAIMER: This article does not constitute professional tax advice; it is only intended to be informational and build awareness about possible tax deductions that business owners might qualify for. Please talk with your accountant or tax advisor before claiming any deductions.
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