What is Section 179? (& How You Can Use it To Save Money)
To quote Benjamin Franklin, there are two constants in life: taxes and death. But since death is very much out of our control, how do you make taxes work for you?
In the realm of business, you can make your taxes work for you by being familiar with IRS tax code sections that benefit your company. One of these beneficial parts is Section 179.
As a Managed IT Service Provider (MSP) with multiple business expenses and managing equipment procurement for our clients, we’re intimately familiar with Section 179. In this article, we’ll look at:
- What is Section 179?
- What should businesses know about Section 179?
- What are the exceptions of Section 179?
What is Section 179?
Section 179 is a section of the IRS Tax code that allows businesses to deduct the price of equipment or software they bought during the year. It essentially allows you to write off the total cost of the equipment from your income.
It primarily provides benefits for small businesses but can also be used by large companies. The US government implemented it to help companies invest in themselves.
What should businesses know about Section 179?
Businesses should know the following facts about Section 179.
1. All businesses that buy, finance, or lease new or used business equipment qualify for Section 179 deduction.
As long as you spend less than $3,670,000, you can qualify for the Section 179 Deduction.
2. You should buy equipment between January 1 - December 31.
Make sure you buy the equipment within the tax year. Ensure that you also use the equipment at least 50% of the time to qualify for the deduction.
3. You can remove up to $1,050,000 from your total gross income.
It works like this: you can buy equipment and directly deduct up to $1,050,000 from your gross income. You can use the entire value of the equipment.
4. You can deduct 100% of the equipment’s 1st-year depreciation cost as a bonus depreciation cost.
For example, you spend $2,000,000 this year on equipment. You can deduct $1,050,000 from your total gross income and then the remaining $950,000 as a bonus depreciation expense.
5. As long as the equipment is “new to you,” you can deduct it from your taxes.
It doesn’t matter if the equipment was bought as a used piece. If it came into your business as a new piece of equipment, it could be considered for the Section 179 Deduction.
What are the exceptions of Section 179?
There is also a cap to the total amount written off: $1,050,000. There are also limits to the equipment purchased: $2,620,000.
You will not be able to qualify for the Section 179 deduction if you have spent more than $3,670,000 on new equipment. It will go into your bonus depreciation deduction cost instead.
Ready to save money on your equipment?
Every business wants to save on taxes, and Section 179 is one of the critical sections in the IRS tax code that helps you do that.
Essentially, Section 179 is a tax deduction meant to help businesses invest in themselves. Instead of paying the taxes back towards the state, you can give your business relief and focus on growing your business.
The top things business should know about the Section 179 deduction are:
- All companies that buy, finance, or lease new or used equipment qualify for Section 179 deduction.
- Equipment should be bought between January 1 - December 31.
- You can remove up to $1,050,000 from your total gross income.
- You can deduct 100% of the equipment’s 1st-year depreciation cost as a bonus depreciation cost.
- As long as the equipment is “new to you,” you can deduct it from your taxes.
Tax deductions are not the only way to save money on your equipment. You can also save money in your business through other means such as proactive IT.