Millions of small business owners throughout the country save money by taking advantage of the Section 179 tax deduction. If you are not quite familiar with Section 179, this Union Commercial Capital blog post is your guide. It has all of the important information you need to know, such as the current deduction and bonus depreciation limits. Read on to learn how you can put Section 179 to work for your business.
Section 179
Section 179 was enacted to boost the economy by giving unique tax benefits to businesses. It allows business owners to deduct all or part of the purchase price of equipment in the year it is acquired and put into use.
There are many types of qualifying equipment, everything from office furniture and computers to business vehicles, software, machinery and more.
Current Deduction Limits
The current deduction limit is $1,000,000 on qualifying equipment, and the limit on equipment purchases has increased to $2.5 million. This was enacted through the Tax Cuts and Jobs Act that was signed into law.
In addition, the bill allows business to depreciate 100% of the cost of eligible equipment that is bought or leased from September 27, 2017, through 2022. Lastly, bonus depreciation now applies to used equipment.
How Bonus Depreciation Works
This is where it gets a little more complicated. Bonus depreciation is an IRS tax rule that lets you deduct additional depreciation for the cost of equipment, beyond the normal depreciation allowance amounts. You just need to elect the Section 179 deduction first, and bonus depreciation second. By combining both, you can boost your deduction amount. As mentioned earlier in this blog post, bonus depreciation will remain at 100% through 2022. Therefore, many businesses are making equipment purchases before bonus depreciation drops to 80% in 2023.
More Than a Tax Deduction
The ability to deduct capital equipment expenses is by far the most attractive benefit of Section 179. However, what about the positive impact that new or upgraded equipment can have on your business? The best and most up-to-date equipment can set your company apart from the competition, improve your efficiency, and help drive profits.
In some industries, faulty or outdated equipment can even put employees’ safety at risk. To prevent these things from happening, you need to invest in new or upgraded equipment, when needed.
Getting the Deduction
You just need to complete Part 1 of the IRS form 4562 and attach it to your tax return. In order to move forward with a Section 179 deduction, you need to elect to take it, and complete and file the necessary IRS form and any additional paperwork, if required.
If you are ready to move forward with an equipment purchase, save yourself the hassle of a small business loan process. Here at Union Commercial Capital, we provide same day credit decisions and a streamlined funding process.
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