Use Section 179 Smartly to Grow, Expand Your Business
June 3, 2019
Since 2008, the federal government has offered small and medium businesses an opportunity to more rapidly recover their expenses on investing in their business through an accelerated depreciation option called Section 179. This incentive allows businesses to more rapidly claim their depreciation credit during the tax year that items are purchased or financed and put into service instead of over a series of annual depreciation claims. Letâ€™s dive into how this incentive works.
Understanding the Limitations
For businesses, the deduction limit for 2015 has been reduced from previous years, notes Section179.org, a resource for businesses looking to take advantage of this tax deduction. Companies can now claim up to $25,000 in deductions for this tax year, although there is a spending cap of $200,000 on purchases that can affect that total. This means that any equipment expenditures for the year in excess of $200,000 will reduce the $25,000 deduction limit on a dollar by dollar basis. For example, if your company spent $200,500 on equipment in the year, your maximum deduction limit would be reduced to $24,500.
This incentive also operates in conjunction with standard write-offs, meaning that while you may only be able to deduct $25,000 of your total equipment purchases in the first year, you may still take normal depreciation as well. For example, if you spend $100,000 on equipment in 2015 and claim the full $25,000 deduction, you may still take first-year depreciation at 20 percent on the remaining balance â€“ $75,000, or an additional $15,000 in deductions â€“ a total of $40,000 in write-offs for the year.
What Purchases Qualify?
The Section 179 deduction covers a wide range of business investments that can help your organization expand, grow or just take care of work more efficiently. Qualifying purchases under Section 179 include:
Any machines you use for your business, such as ovens, sewing machines, saws or any other machinery that is usable as part of your regular business operations.
To receive the full benefit, vehicles must be fully designated for business use, not passenger vehicles that have a mixed use. Examples include hearses or ambulances, transport vans or trucks used specifically for transporting products, goods or people in a business capacity; or a vehicle modified for business use (like a van without rear seating that has your company logo painted on and permanent storage installed). Other passenger vehicles that donâ€™t meet these full requirements can be claimed, but have a maximum depreciation of $11,060 for cars and $11,160 for trucks or vans.
Computers and Software
New computer systems and related peripheral equipment as well as computer software can be claimed. Software purchases must be â€œoff-the-shelfâ€ products that are commercially available, and cannot be exclusive use or custom-created software for your organization. It must also be used in an income-producing activity, and have a determinable useful life of more than one year.
Certain business fixtures, furniture and equipment also can qualify for the Section 179 deduction. This includes retail shelving units, copiers and printers, signage, refrigerators and other types of office equipment.
Some items can also be claimed if they are tangible personal property used in business or items purchased that have a partial business use. For the latter items, the deduction must be calculated based on the percentage of time used for business purposes versus time used for personal uses. In addition, property that is attached to the building but not a structural part of the building â€“ like a printing press or large equipment installation â€“ can also qualify.
Leasing and Section 179
There are a wide variety of leasing programs that can make these purchases more affordable for buyers and still allow businesses to take advantage of Section 179. Non-tax capital leases, for example, allow the business leasing the equipment to act as the owner, thus permitting that business to write off the depreciation as if it was their own property. This can allow businesses to enter a lease with a lower cash outlay than a full purchase, recover depreciation and use those savings from the accelerated depreciation of Section 179 to help pay for the equipment.
The team at US Business Funding has worked with clients throughout nearly every industry imaginable, and has helped these businesses find equipment leasing and financing options to help them purchase what they need to make their business successful. Let us help you build and grow your business. For more information, contact US Business Funding today or request a quote online now.