Section 179 Deductions – What Are They?

Last updated on September 7th, 2021 at 04:49 pm

2020 has hit all of us hard, especially those of us working in foodservice and small businesses. How can we invest in our businesses in this economy and still be relatively financially stable? Well, we have the rundown on Section 179 deductions, a hidden small business gem buried in the tax code. Believe me, if I can understand it, it’ll be a piece of cake for you.

(If you read our last blog about Section 179, there are essential changes here to note for 2020).

What Are Section 179 Deductions?

Section 179 deductions are a tax incentive specifically for small businesses to invest in themselves. It allows businesses to deduct the ENTIRE amount of qualifying equipment purchases in the current tax year from their gross income, rather than writing off a partial amount each year. These deductions are available as long as equipment is purchased and fully operational before the end of the tax year (12/31).

Qualifying Deductions

Eligible business expenses for deduction are both new and used equipment, software, and/or business vehicles purchased or financed during the current tax year. Again, any equipment purchased must also be fully operational by the end of the day on December 31, 2020. Financing your equipment will also allow you to slowly pay off your equipment purchase while still being able to deduct the full purchase price* (unlike a bank loan).

_{* Terms & Conditions may vary, dependent on your specific situation}

Section 179 Limitations

To truly make this a small business incentive, the IRS designates spending caps on equipment purchases for companies to qualify.

Company Spending Cap: The maximum amount able to be spent on equipment in 2020 is $2,590,000. Once a company reaches this limit, the deduction will be reduced dollar-for-dollar.

Company Deduction Limit: The IRS has increased the deduction limit in 2020 to $1,040,000.

What does this mean? Any company spending more than $3,630,000 on equipment and software will not qualify for a deduction using Section 179.

Savings

2020 has been a year of chaos and unforeseen challenges. Financing your equipment can ensure you still have extra cash on hand for anything that might come your way. The amount that you can write off in taxes can exceed profits, which allows you to finance more equipment and reinvest in your business.

Keep in mind that we at Burkett are not tax professionals and you should always consult your own to figure out what’s best for your business!

If you have any questions or are ready to purchase or lease foodservice equipment, contact us! Call, email, or website live chat to talk to a sales specialist today!