Mar 14, 201912:13 PMOpen Mic
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The advantage of Section 179 for business equipment financing
Section 179 might sound like part of a football stadium, a concert hall, or a military court martial, but if you buy or finance business equipment, you’ll want to know about this part of the IRS tax code that could help save your business money on important business equipment acquisitions.
Previously, when you’d buy business equipment, the tax code would require you to write it off incrementally through depreciation, sometimes taking several years to recoup the entire cost of the purchase. However, you can imagine that you might make different business decisions if you could see a benefit faster, like in the same year you purchased the equipment. That’s the goal of recent changes — to provide more incentive for small businesses to purchase needed equipment immediately.
Section 179 is an expense deduction for business equipment like machinery, computers, office equipment, and more, allowing qualifying businesses to deduct the cost of certain equipment as an expense instead of capitalizing it and depreciating it over a period of years. These examples reflect the top benefits I see for many businesses, but make sure to consult an accountant before assuming your business will benefit.
Savings — With the Tax Cuts & Jobs Act, which became effective for tax year 2018, the limits in Section 179 changed dramatically to spur small business growth, and bonus depreciation changed, as well. For Section 179, the deductible amount increased from $510,000 to $1 million, with a spending max of $2.5 million. As long as the total amount of the new or used equipment doesn’t exceed $2.5 million, you can deduct up to $1 million of it as an expense each year (by Dec. 31 of that year).
As an example, on a $2 million equipment purchase, your business can write off $1 million as an expense through Section 179, and take 100 percent of the rest ($1 million) in bonus first-year depreciation for a deduction of $2 million total. For comparison, in 2017, you were only allowed 50 percent on new equipment, and only in bonus first-year depreciation.
Optimize operating costs — Through careful tax planning, and a personalized combination of Section 179 and bonus depreciation, you can strategically benefit your business in the long run. For instance, although Section 179 won’t allow you to create a net operating loss for your business, bonus depreciation does allow it. If you go this route, you can revisit years when you showed a profit and potentially claim a refund.
Patrick Kuhn is vice president – equipment finance for First Business Equipment Finance LLC. He has more than 30 years of experience in financial services and helping manufacturers and distributors grow sales, market share, and cash flow with unique customer financing strategies.
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