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What is Section 179 and How Does Your Business Benefit?

What is Section 179 and How Does Your Business Benefit?
November 14, 2022 Joe Viola

Businesses nationwide are beginning to tax plan for the end of the calendar year, and one of the most utilized tools is the Section 179 deduction.

Section 179 is a tax provision that allows businesses to mitigate the full cost of qualifying purchases. Although the section has been in place for decades, changes are made to the law year-to-year.

Why Your Business Should Execute

Understanding the full scope of Section 179 is especially crucial in Q4 when businesses are evaluating their upcoming purchasing. Your business now has the option to push forward a payment to the next year (or years) if desired. By taking advantage of Section 179, your business can get the equipment you need sooner, and keep working capital flowing.

Alleviating some financial pressure, companies that take advantage of the tax deduction may now acquire equipment or software without the worry of financial constraints. Having the option to deduct a full purchase of equipment before paying off the loans allows SMBs to work with a lot more flexibility. This also reduces the barrier of entry in acquiring equipment for new businesses too.

With the update of the Section 179 tax code by the IRS, businesses are allowed to write off entire purchases for qualifying equipment. Business owners are offered this instead of opting for depreciation over the prescribed time by the IRS. For 2022, the deduction limit is priced at $1,080,000.

Businesses can purchase, finance and/or lease new or used equipment during the tax year. Saving tons of money and headaches, many tangible goods used by companies qualify for Section 179.

Purchases that qualify for the Section 179 deduction are:

  • Machinery, tools and equipment
  • Office furniture
  • Computers, printers or other computer equipment
  • “Off-the-shelf” software
  • Business-use vehicles
  • Smartphones
  • Building improvements (fire alarms, roofing, security systems, etc.)

Your Business can spend up to $2.7 million on equipment to qualify for a full price deduction.

What Is Section 179?

Most think the Section 179 deduction is a complicated tax code, but that is not the case! It is actually an incentive from the United States government to encourage businesses to purchase equipment and invest in themselves.

Section 179 enables business to deduct entire purchases of eligible equipment or software for the year it was put into service. In the past, the deduction was forced to be written off through little increments at a time through depreciation.

The expansion of this tax deduction is monumentally helpful for small-to-medium sized business owners. Section 179 is one of the few incentives pushed by the government for the benefit of small businesses, and it recently has been included in many stimulus acts and congressional tax bills.

 

Of course, this tax code comes with limitations.

– The purchased property must be used for business purposes more than 50% of the time.

– The IRS institutes yearly limits on how much one business can claim with Section 179

– Not all purchases are eligible for tax deduction (see list above)

– Intangible assets (patents or copyright) do not qualify

This year, for a purchase to qualify, it must’ve been received between January 1, 2022 and December 31, 2022.

Want To Learn The Specifics About Section 179?

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Closing

Previously known as the “SUV Tax Loophole,” a ton of businesses used the tax code in the past to write-off said SUV’s. Because of the IRS updating the section, large purchases now no longer have the same financial devastation they used to… and writing off an SUV for personal use is now much harder now.

If your business decides to execute Section 179, it will be your most profitable business decision made this year.

* DISCLAIMER: Be sure to consult with a tax professional before moving forward with purchasing *