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Section 179 and You: Equipment Tax Deductions

2021 has been a year of resurgence and resiliency for our businesses and country. After a tough 2020, this year has still provided numerous challenges for many industries. We are still experiencing a global pandemic causing supply shortages, longer lead times, higher costs, and labor shortages. It leaves many people with a lot of unknowns for the coming years.

How can we invest in our business in this economy to ensure financial stability for the following years to come?  Let’s put it simply: the tax code contains a little gem to small businesses called Section 179.

Most business owners may think this tax code is complicated or somehow they can’t take advantage of it. Here at Burkett Restaurant and Supplies, we hope this post makes it simple and easy for anyone to understand Section 179.*

*Keep in mind, we at Burkett are not tax professionals by any means. We encourage you to consult your tax advisor about what is best for your business.

Potentially save $1,000's in taxes with Section 179. 2021 Company spending cap: $2,620,000. 2021 Deduction limit: $1,050,000. Equipment must be purchased & operational by December 31

What is Section 179?

In the simplest of terms, Section 179 is a section of the IRS tax code encouraging businesses to buy equipment and invest in themselves. This is one of the few government incentives for small businesses which have been included in many of the recent stimulus acts and Congressional Tax Bills.

Essentially this allows for the business to purchase a piece of qualified equipment and/or software and deduct the full purchase from their gross income. For 2021, the maximum deduction you can elect for is $1,050,000.00.

How does Section 179 work?

Previously, your business might have typically written off an equipment purchase over time through depreciation. For example, maybe your business bought a machine for $50,000 and you wrote off $10,000 a year for five years. Under the normal depreciation rules, business owners would only receive a fraction of the cost in deductions each year over the useful life.

With the help of Section 179, business owners can now write off the entire equipment purchase for the year they buy it. Now, if you purchased that $50,000 piece of equipment, you can deduct that from your net income the first year you own it. Assuming the tax bracket is 35%, your savings would be $17,500 on that $50,000 purchase.

It is important to note that you must elect on your taxes to use this code as it is not automatic and you must be profitable to qualify.

Ultimately, this deduction has allowed businesses to buy equipment right now rather than waiting, therefore stimulating the economy.

Section 179 Limits

There are limitations on both the overall amount of write-offs and the total quantity of equipment acquired under this tax deduction.

In 2021, the total you can write off is $1,050,000.00, but this section limits the total amount of equipment purchased to $2,620,000.00. This deduction begins to phase out on a dollar-for-dollar basis after the initial $2.62 million is reached. Thus, the entire deduction goes away after $3,670,000.00 in purchases.

As a result of this limit, this tax code is a true deduction for small and medium businesses.

Qualifying for Section 179

In reality, all businesses that purchase, finance, and/or lease new or used equipment for their business during the tax year of 2021 should be eligible for this tax deduction. This applies as long as their purchase is less than the $3.67 million limits.

In addition, Section 179 applies to the majority of physical items purchased and used by American businesses, including “off the shelf” software, business use cars, equipment, and other commodities. The equipment, software, or other applicable items must be purchased and already in use by December 31st of the tax year. The items purchased must be used for business purposes more than 50% of the time to qualify for this Section 179 deduction as well.

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Section 197 vs. Bonus Depreciation

Many business owners at the end of the year ask, “Should I take the bonus depreciation or section 179?”. To simply answer that question, it is based on the amount you are spending on new equipment and the size of your business.

Bonus depreciation is a tax incentive that allows business owners to report a larger chunk of depreciation in the year the asset was purchased and in-service (restrictions apply and not all assets are eligible). Since there is no dollar limit on this tax deduction, it is advantageous for very large businesses which spend more than the Section 179 spending cap on new capital equipment. In 2021, the bonus depreciation is being offered at 100%.

It is important to note that in 2021, the tax code has changed with bonus depreciation. In prior years, bonus depreciation has only covered new equipment. Now with the changes, this tax deduction includes used equipment as well. Also important to note: if your business has a net loss, you can still qualify to deduct some of the cost of the new equipment and carry forward the loss.

This deduction does automatically apply when filing taxes but you can opt-out of the use of it. When applying for these write-offs, Section 179 is generally taken first then Bonus Depreciation. This only changes when the business has no taxable profit due to the unprofitable business being allowed to carry the loss forward for future years.

What to do with the savings

2021 has been another challenging year for any size business. With rising costs of equipment and longer than average lead times, buying for both profitability and longevity is crucial.

Taking advantage of the tax deductions you are eligible for can help grow your business. Financing your equipment allows your business to have cash on hand in case of any emergency. The write-offs in the taxes can exceed profits, which can allow you the ability to reinvest more into your business. 

Again, if you have any questions on how you can apply this to your business, please consult your tax professional.

If you are ready to purchase, lease or finance your foodservice equipment, give us a call, email, or check our website out at Burkett.com for web live chat to talk to a live salesperson. If you are local to the Toledo area, check out our showroom in Perrysburg at 28740 Glenwood Rd!

Section 179 Deductions – What Are They?

Potentially Save $1,000s In Taxes with Section 179 Deductions

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!

What is Section 179 of the IRS Tax Code?

IRS Section 179 info graphicMost 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!

Ready to get started? Still have more questions? Follow this link to email, chat, call, or visit one of the superior sales solutions specialists at our Perrysburg, OH headquarters.

What to Buy Before Opening a Restaurant

Fast casual food dining area with chairs and wooden tablesFor restaurant owners just starting out, the search for the right equipment and supplies can be daunting. Figuring out exactly what you need is a difficult task. For any restaurant, there will be a long list of equipment and supplies that need to be procured before even opening, and that list is different for each person and each restaurant.

Determining What Equipment You Need

The equipment you need will largely depend on your menu and your restaurant concept. However, here are a few general guidelines to follow when you first make up the list of equipment you want to purchase:

Limit yourself. When deciding how much equipment you need, the key is to limit your equipment. Evaluate your menu to determine the fewest pieces of equipment that are needed to produce all of the dishes. For example, if you own a sandwich shop, your absolutely essential equipment needs might be limited to a commercial refrigeratorsrefrigerated prep tablesice machines and meat slicers.

Add strategic extras. The list of essential equipment should be your basis for purchasing. However, if you have extra room in the kitchen and enough extra capital, you can purchase extra pieces: for example, a commercial food processor or cheesemelter. While this equipment may not be a necessity, it can reduce the kitchen labor required to produce your menu, enhance the final taste or appearance of the food or make your kitchen more flexible in case you need to change your menu in the future.

Does slightly imperfect sound perfect to you? 
Shop Burkett’s discount restaurant supply section today!

Determining What Supplies You Need

Most commercial kitchens need basic kitchen utensils on hand, such as scoops, spoons and spatulas. Often, fledgling restaurant owners overlook purchasing these necessities until the last minute, so before opening, be sure to consider even the smallest things you will need.

Speed up your kitchen. Purchase handy food prep supplies, like vegetable cutters and slicers for high volume produce. Commercial kitchen tools like these can help increase your workers’ productivity.

Stock up for storage. The last thing you want to do is overlook your storage requirements. Every restaurant will need food storage and shelving to hold its supplies. Many full-service restaurants will also require food service carts to help move supplies from one area of the kitchen to another.

Do not overlook the tabletop. Every restaurant will need smallwares. Quick-service establishments will need disposable restaurant supplies, while full-service restaurants will need reusable dinnerware and drinkware. Most restaurants will also need other supplies for their tabletop, like condiment containers, condiment holders and food baskets.

Remember food safety supplies. Glovespot holdershairnets and thermometers are easy to overlook, but they include essential items that any commercial kitchen needs to meet strict health codes and keep workers and customers safe.

Finding the Right Equipment and Supplies

Every restaurant is different and therefore has different equipment requirements. Using a buying guide or speaking directly with an expert will empower you to make the best possible decisions when purchasing equipment.

Think about going green. Purchasing eco-friendly restaurant equipment and supplies is a good way to help the environment and attract customers at the same time. It will also help you save a significant amount of money on your utility bills.

Consider used or discounted equipment. On a tight budget? You may want to look into buying used equipment or equipment that is cosmetically damaged. Although there is some risk involved, for some restaurant operations, this is a viable option. Check out this blog post on the pros and cons of used restaurant equipment.

Finding a Good Dealer

You can often get a better deal if you choose one restaurant supply dealer and stick with it. Since you order all of your supplies from one business, you are likely to receive a discount. To find a dealer that is right for you, you must first consider your priorities. Usually, your priorities will include one or more of the following:

  • Price. While a local dealer may offer excellent pricing, usually the least expensive products can be found online. However, the cheapest online dealers usually offer low prices but lack the customer care services and expertise that can be found with higher-priced online or brick-and-mortar dealers.
  • Expertise. Speak directly with salespeople to determine their level of expertise. If the salespeople seem to be experts at making a sales pitch, rather than having knowledge about the actual products they are selling, it may be time to find another dealer.
  • Customer Service. When buying expensive equipment, any restaurant owner should make sure that their dealer offers superior customer service. Without good customer care, if you receive damaged equipment or your equipment does not live up to your expectations for any reason, you may be stuck with it.
  • Installation. One of the major advantages of buying from a local restaurant equipment dealer is that they will often provide you with equipment installation, for a fee. If you buy your equipment online or at an auction, you are less likely to find installation included in the package. However, some online dealers, such as Burkett.com, will help you find someone to install the equipment.

When looking for a good dealer, it is also important to look into the following:

  • Shipping costs
  • Return policies
  • Parts availability

Finding the right equipment and supplies at a good price from a reasonable dealer is a major aspect of opening a restaurant. If you do not have the right supplies from the right dealer, it will end up hurting your bottom line in the long run. Be sure to carefully consider your equipment and supply needs, as well as your choice of dealer, before you begin to purchase.

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