What Every US Business Owner Needs to Know About the Section 179 Deduction
What is Section 179?
Essentially, Section 179 of the United States IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves.
Today, Section 179 is one of the few incentives included in any of the recent Stimulus Bills that actually helps small businesses. Although large businesses also benefit from Section 179 or Bonus Depreciation, the original target of this legislation was much needed tax relief for small businesses – and millions of small businesses are actually taking action and getting real benefits.
When your business buys certain items of equipment, it typically gets to write them off a little at a time through depreciation. In other words, if your company spends $50,000 on a machine, it gets to write off (say) $10,000 a year for five years (these numbers are only meant to give you an example).
Now, while it’s true that this is better than no write off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it.
In fact, if a business could write off the entire amount, they might add more equipment this year instead of waiting over the next few years. That’s the whole purpose behind Section 179 – to motivate the American economy (and your business) to move in a positive direction. For most small businesses, the entire cost can be written-off on the 2018 tax return.
What Qualifies for the Section 179 Deduction?
All businesses need equipment on an ongoing basis, be it machinery, computers, software, office furniture, vehicles, or other tangible goods. It’s very likely that your business has purchased many of these goods during the past year, and will do so again and again. Section 179 is designed to make purchasing that equipment during this calendar year financially attractive.
Please keep in mind that to qualify for the Section 179 Deduction, the equipment listed below must be purchased and put into use before December 31, 2018.
- Business equipment of all types including machinery, computers, office furniture, storage tanks, signage, and any other commercial equipment.
- Vehicles designed for commercial-use such as 9+ passenger seats, cargo area of at least 6′, or fully enclosed driving compartment with no body section protruding more than 30″ ahead of the windshield.
- Vehicles with 6,000+ pounds GVW (gross vehicle weight) qualify for Section 179
- Off-the-shelf software readily available for purchase by the general public.
- Storage facilities and/or structures utilized for agricultural / horticultural purposes (Small disclaimer: main buildings / plants / offices don’t qualify)
The equipment listed above need not be new – it can be used (but new to you). Almost any “portable” (non-permanently installed) piece of business equipment will likely qualify. If you have any questions on whether something you wish to lease or finance will qualify for Section 179, contact a certified tax professional. Microvellum is not responsible for advise related to your company’s tax situation.
Does software qualify for Section 179?
For basic eligibility, the software must meet all of the following general specifications:
- The software must be financed or purchased outright by you.
- The software must be used in your business for income-producing activity.
- The software must have a determinable useful life.
- The software must be expected to last more than one year.
Yes, Microvellum Software qualifies for the Section 179 Deduction.
Consult a certified tax professional to learn more about this tax deduction that could help you get the tools you need to stay competitive in the new year.
Software Purchases = $20,000
- First Year Total Deduction = $20,000
- Cash Savings on Your Purchase (35% Tax Bracket) = $7,000
- Lowered Cost of Software = $13,000