Equipment Financing

 

Small Business Owner’s Guide To The Section 179 Tax Deduction


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Small Business Owner’s Guide To The Section 179 Tax Deduction

With experience comes great knowledge.

No, this isn’t Uncle Ben from Spider-Man talking about great power and responsibility. But even Uncle Ben probably knew the importance of understanding tax codes for small business owners.

The more experienced someone is in owning a business, the more they know about how to take advantage of tax deductions when deciding to apply for commercial equipment financing. If you’re a new small business owner, the Section 179 deduction may seem a little mysterious or even complicated. But in reality, there’s no reason to be afraid.

 

The Inner Workings Of The Section 179 Tax Deduction

Section 179 allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. It’s an incentive that is easy to use and gives businesses a reason to invest in themselves.

Small business owners can write off new and used equipment purchases up to $500,000.

The best part about getting the tax refund is knowing you’re saving money on the equipment you purchase while using it for other needs that your business might have.

There are many good examples of how Section 179 works.

When a business buys equipment, it can write it off a little at a time through depreciation. If a company spends $50,000 on a machine, it can write off $10,000 a year for five years.

Most small business owners like to write off the entire equipment purchase for the year in which they buy it. If a business can write off the entire amount of the purchase, it might add more equipment in the same year instead of waiting over a few years. The whole goal behind the Section 179 deduction is to stimulate the United States economy to move in a promising direction.

 

Limitations With Commercial Equipment Financing

Section 179 isn’t perfect because there are limitations that go with it when deciding to go with commercial equipment financing. The cap is $500,000, which limits the total amount of equipment that a small business owner can purchase ($2 million in 2017). The deduction then begins to phase out dollar-for-dollar after that $2 million is spent by a business.

Also, some kinds of property don’t qualify. That includes land and permanent structures, furnaces or air conditioning units, any property meant for use outside the United States and any intangible property, including copyrights or patents.

There are other situations where you can’t take advantage of Section 179. These situations include not using any property you might inherit, obtaining anything from another organization that you have control over or purchasing from a relative.

You also have to use the equipment you buy primarily for your business in the year that you bought it. For example, you can’t convert personal property over to a business property while trying to apply the deduction.

Any equipment, vehicle or software that is purchased for business use qualifies for the Section 179 deduction. To calculate this, multiply the total cost of your purchase by the percentage of business-use to arrive at the monetary amount you are eligible for with the deduction.

 

Do Your Research To Understand Section 179’s impact

Tax rules always impact your business decisions and which equipment you finance.

All small business owners should make research a priority early on. And, as the years go by, it doesn’t hurt to research the latest changes to United States tax rules. You will only benefit from it in the long run.

If you’re not comfortable with understanding tax laws and regulations, or deductions like Section 179, find a tax professional who can help you.

The key benefit of the Section 179 deduction offers your business is that it allows you to lower your tax burden, while simultaneously upgrading your business with new equipment. It’s a win-win.

Topics: Equipment Financing

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