If there is one thing every small business can get behind, it’s tax incentives and reducing their overall tax burden. The government makes a few incentives available to small businesses, and section 179 is one of them. Although large businesses can also benefit from section 179 or Bonus Depreciation, the original target of this legislation was tax relief for small businesses. Millions of small businesses have already taken action and have realized tangible benefits.
What Is Section 179?
Section 179 of the Internal Revenue Code (IRC) allows businesses to deduct the full purchase price of qualifying depreciable assets such as equipment, vehicles, and software purchased or financed during the 2023 tax year, up to $1,160,000.
The section 179 expense deduction was created to help small businesses invest in themselves and purchase equipment. In the past, if a business spent $50,000 on a machine, it would get to write it off just $10,000 a year for five years through depreciation. With section 179, instead of writing off equipment a little at a time through depreciation, business owners can write off the entire purchase price of qualifying equipment for the current tax year, which can save hardworking business owners a lot of time and headaches. For this reason, businesses shouldn’t wait to take advantage of the section 179 deduction, as it can make a big difference for many companies.
What Kind Of Equipment Qualifies For Section 179?
New and used equipment purchased and put into use in the 2023 tax year currently qualifies for the deduction. Material goods that qualify include, but are not limited to, business equipment, business vehicles with a gross vehicle weight of 6,000 pounds or more, computers, software that is available to the general public, office furniture, and office equipment. Section 179 is taken on an item-by-item basis, so businesses do not have to use it on all eligible property bought during the year.
Is My Business Eligible For This Deduction?
All businesses that purchase, finance, and/or lease new or used equipment can be eligible for the section 179 deduction.
Deduction Dollar Limits For Section 179
Limits can change and for 2023 tax year the limits are the maximum section 179 expense deduction is $1,160,000. (By contrast, the maximum deduction for the 2022 tax year was $1,080,000.) This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,890,000. (This is a change from the $2,700,000 limit for the 2022 tax year.) Also, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2023 is $28,900.
How Can My Business Take This Deduction?
To take the section 179 deduction, a business needs to fill out Part 1 of IRS tax form 4562 Depreciation and Amortization, and attach it to their tax return.
Key Points
• Section 179 is a tax code that was created to allow businesses to deduct the full amount of the purchase price of equipment, thereby giving businesses an incentive to purchase, finance, or lease equipment.
• Section 179 can greatly help a business’s bottom line by deducting the full cost of equipment and thus substantially lowering the amount a business pays for equipment and/or software.
• To qualify for section 179, all a business needs to do is purchase qualifying equipment. The equipment must have been purchased and placed into service by midnight, December 31st of the year you are taking the deduction for.
• Section 179 can change from year to year. For the past several years, Congress has raised the deduction limit, let higher limits expire, then raised them again, so there’s no better time to take advantage of this tax incentive than now.
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