Last updated on July 20th, 2022 at 04:48 pm
Most business owners think the IRS’ Section 179 tax deduction is some mysterious or complicated tax code. It really isn’t, we promise.
What Is Section 179?
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. That means that if you buy a piece of qualifying equipment, you can deduct the entire purchase price from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment more easily and invest in themselves quicker.
Section 179 allows businesses who finance their equipment purchases to write off full equipment costs in the year they buy it rather than capitalizing costs over the useful life of the equipment and waiting years to receive deductions.
For 2018, the maximum deduction you may elect to take for a year is $1 million. However, the equipment must be purchased and already in use by Dec. 31 of the tax year.
How It Works
So, let’s say you bought a $10,000 piece of equipment for your business. Under normal depreciation rules, you would only receive a portion of the cost in deductions each year over its useful life. Now, under Section 179, you can deduct the entire $10,000 from net income in the first year you own it. So, assuming a 35% tax bracket, that’s a tax savings of $3,500. That savings lowers the cost of your $10,000 purchase to $6,500!
What to do with the savings
Financing allows you to have cash on hand for emergencies or unforeseen business costs. The amount that you can write off in taxes can exceed profits, which allows you to finance more equipment and reinvest in your business!
If you’ve been thinking about making that major purchase, take advantage and do it today, 2018 is almost over!
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