If you’ve been in business awhile you may have some questions on tax code Section 179 and how it can help your business. In this post, we’re going explain everything a small business owner like yourself needs to know about Section 179 and what it can do for you.
Section 179 gives you a chance to invest in yourself and get the funds they need.
It’s An Investment In Yourself
There’s a reason many people get stressed around tax season. Tax codes like Section 179 seem so complex that they think they need a code to understand the code. Some might even forego using Section 179 altogether because they assume their business won’t qualify. However, not only would their business qualify, using Section 179 would also give them a chance (and you) a chance to invest in themselves and get the funds they need.
Section 179 used to be called the “SUV tax loophole” or the “Hummer deduction.”
Back to Basics
In basic terms, Section 179 is a tax deduction on your gross income tax. It allows small and midsize business owners to deduct the full price of office equipment, machinery, certain types of property, and vehicles from their gross income tax.
Years ago this was often called the “SUV tax loophole” or “Hummer deduction,” because of the type of things deducted, but Section 179 has proven to be a great tax code that goes far beyond cars.
The beauty of Section 179 is that it does not matter if you rent or lease. All that matters is that your business used the equipment by December 31, 2018
How Section 179 Works
Suppose you recently added two used tractor-trailers to your growing fleet for $100k. In the past, you might have used depreciation to write them off and get a portion of their price back each tax year. With Section 179 you get to deduct the full amount the year you bought it. CPA Crystalynn Shelton from FitSmallBusiness.com explains further:
“Think of the Section 179 deduction as accelerated depreciation. Instead of waiting 5, 7, 15 or more years to deduct big-ticket items like a vehicle or expensive equipment, you can elect to depreciate most, if not all of it, in the year of purchase. This is especially good for businesses that are starting up, as high business costs can hinder your future growth.”
The beauty of Section 179 is that it does not matter if you rent or lease. All that matters is that your business used the equipment by December 31, 2018.
What Qualifies for Section 179
There are many items in your business that may be deducted via Section 179, such as:
- Equipment used in business
- Personal property used in business
- Personal vehicles (that are used for business over 50% of the time)
- Computer software such as Microsoft Office
- Office Furniture
- Office Equipment
- The improvements you make to a nonresidential structure
- Restaurant property
While this all sounds amazing (because it is) there are limits. In 2017, deductions under Section 179 couldn’t exceed $500K. For 2018, the limit is $1M.That’s where bonus depreciation comes in.
Bonus depreciation is an additional deduction you can take after Section 179. It’s like whipped cream on a Sundae. Your savings are already pretty sweet, and they’re about to get sweeter. However, there are four caveats you should be aware of before proceeding.
- The total you can deduct under Section 179 and bonus depreciation can’t exceed $2,500,000.
- It does not apply to anything leased.
- It’s not offered every year.
- The percentage it covers varies from year to year.
For example, in the 2017 tax year, any qualifying equipment over the $500K limit would be deducted at 50% of its value. So, if you had $200K left over from Section 179, you could only deduct an additional $100K, making the total deduction $600K.
Thankfully, the bonus depreciation for 2018 is 100%. Take a look at the picture below to get an idea of what your deduction could be like.
DISCLAIMER: This is just an example. We are not tax advisors. You should always consult with a CPA to get a clearer picture of what you can deduct.
Get Ready for Section 179 With First Captial Business Finance!
First Capital Business Finance has many programs to get you the equipment you need. Call 888-939-1039 or click below to see how First Capital can help you use Section 179 to the fullest!
How Section 179 Could Save You Money | First Capital Business Finance