Section 179 Deductions: Everything Atlanta Businesses Need To Know
As a small or medium-sized business owner, you've probably heard of Section 179 of the IRS Tax Code. If you haven't already, it's usually a good idea to properly evaluate your alternatives before filing taxes.
Section 179 Deductions: Everything Atlanta Businesses Need To Know
As a small or medium-sized business owner, you’ve probably heard of Section 179 of the IRS Tax Code. If you haven’t already, it’s usually a good idea to properly evaluate your alternatives before filing taxes. The fine print may include fresh prospects for your company’s growth. While the term may sound complicated, Section 179 is straightforward and promises significant savings.
Here’s all you need to know about Section 179.
What Is Section 179?
Section 179 was developed in 1958 to encourage small company investment in things that benefit the firm, facilitate bookkeeping, and lower tax liability. Businesses can deduct the full purchase price of any eligible piece of equipment or software in the year it was acquired or financed under Section 179 of the IRS Tax Code. With Section 179, a firm may claim the whole deduction in one year rather than spreading it out over several years. Section 179 is an excellent incentive for businesses to acquire, fund, or rent equipment since it allows them to deduct the whole cost of the equipment up to specific limits.
Relatively newer small enterprises that must immediately invest in a large number of assets can leverage the power of the deduction. It may also assist existing firms in making decisions about acquiring new investments that will help them develop. Even if the acquisition costs the company a lot of money upfront, the tax implications may assist relieve the strain at first.
How Does Section 179 Work?
The Section 179 deduction allows you to deduct the cost of certain types of assets as an expense on their taxable income, eliminating the requirement to capitalize and depreciate an item. It does not enhance the overall amount you may deduct for an asset; instead, it lets you claim the complete depreciation deduction in one year instead of little portions over time. You might be able to save money on taxes as a consequence. Understanding the benefits of Section 179 is particularly crucial when firms are assessing their needs for the next year and may wish to push a purchase ahead for the deduction.
You could use IRS Code Section 179 instead of the traditional depreciation write-off method as a business owner. If you buy company equipment, you can deduct the cost from your taxable income in the same tax year. Section 179, in essence, treats your firm’s capital expenditures as though they were costs. The TCJA set the maximum Section 179 cost deduction from $500,000 to $1 million for tax years beginning after 2017. The phase-out threshold was raised from $2 million to $2.5 million. For tax years beginning after 2018, these amounts are adjusted for inflation.
Who Qualifies for Section 179?
All firms that buy, loan, or lease new or used business equipment for the tax year 2021 should be eligible for the Section 179 Deduction (provided they spend less than $3,500,000). Congress has ended the Section 179 roller coaster of recent years by making the Tax Deduction limit permanent. For 2021 and beyond, the threshold is $1,000,000.
Does My Equipment or Software Qualify for Section 179?
Under Section 179, if your firm acquired equipment during the tax year and used it for business more than 50% of the time, the equipment may be eligible for a Section 179 deduction. There are only a few conditions to take advantage of this fantastic tax break.
Items that qualify include:
“Off-the-Shelf” software (i.e., software that has not been modified and is widely accessible)
Purchased for commercial purpose equipment
Office equipment or furnishings
Work vehicles that cannot be used as personal cars.
If you wish to deduct property that you only use for the business part of the time, the proportion of time you use the equipment or item for business will determine the amount of deduction you get. For example, if you buy a piece of equipment and use it 65% of the time for the company and 35% for personal usage, you may only deduct 65% of the cost.
The following are some examples of activities you cannot do while claiming the deduction:
Property that has been leased, inherited, or given as a gift.
Personal assets converted to business property that is used for commercial purposes less than 50% of the time
Furnaces and air conditioners
Property located outside of the United States
Copyrights and patents are examples of intangible property.
What Does Section 179 Mean for Your Small Business?
Section 179 is especially attractive to small firms because it allows them to write off the full cost of materials or services before paying off their loans. Having the equipment virtually guarantees they can start making money and keeping their cash flow in fine condition. The deduction can also dramatically lower the barriers to entry for newer enterprises when it comes to purchasing equipment. The tax savings demonstrate how great this incentive is, and they are big enough that many firms are taking action.
NFIB surveyed its members to determine how much Section 179 supports small businesses. Small company owners were asked how Section 179 aided their growth and advancement in the NFIB study.
Here’s what the NFIB discovered:
Section 179 was utilized to offset tax costs by 78 percent of small enterprises.
Last year, 82% of respondents purchased equipment or software
35% of small company owners are unaware that they are qualified for Section 179 deductions.
Computers (51%) were the most frequently purchased item, followed by automobiles (44%) and office furniture (31%).
75% made qualified purchases totaling less than $50,000.
You may pick which purchases to deduct under Section 179 and which to store for future tax savings. For specific purchases, you may even divide the deduction.
Limits of Section 179
The Section 179 deduction is subject to a few restrictions:
The total amount of business property costs that can be deducted each year is limited to $1,000,000 under Section 179.
Because only organizations that spend less than $2.5 million per year on eligible business equipment acquisitions qualify for Section 179, this deduction is heavily geared toward small and medium-sized enterprises.
Starting in 2018, Section 179’s $1,000,000 annual deduction limit and $2.5 million business investment limit were adjusted for inflation, ensuring that the quantity of deductions adjusts somewhat each year in line with general economic prices.
Have Section 179 Questions? Centerpoint IT Can Help
Your business can save a lot from Section 179 deductions. If you’re not sure where to start, reach out to us at Centerpoint IT, your trusted Atlanta IT provider. We can help you maximize your tax from Section 179 deductions while also taking care of all your IT needs. Contact us today for more information!