No one is a big fan of Uncle Sam. He and his buddies at the IRS come around each year with their hand out, just to take your hard earned money. Business growth and scalability can be an uphill battle when you have tax season looming. Cut Uncle Sam a little slack though, he did create section 179 for business owners just like you – making your investments no longer a struggle but a catalyst for growth instead.
What is section 179?
This tax deduction is available to SMBs that purchased qualifying equipment during the tax year. Eligible businesses can write off the entirety of those purchases (up to one million dollars). So if your business purchased $100,000 in new computers, you can write that off! Keep in mind that this is not included in your standard tax preparation. You will need to elect to claim that property and fill out an additional tax form. To elect to take the Section 179 Deduction, simply fill out Part 1 of IRS form 4562 and attach it to your tax return.
What is considered qualifying equipment?
This is where Uncle Sam has your back. Just about all tangible business equipment can be included. Also, it doesn’t have to be brand new (just new to you). The items can be used, leased, or even financed, just ensure the purchase was made within the tax year. More often than not, SMB’s purchase needed equipment throughout the year so this deduction encourages businesses to keep doing so. The following items are considered qualifying by IRS.gov.
- Equipment (machines, etc.) purchased for business use
- Tangible personal property used in business
- Business Vehicles with a gross vehicle weight in excess of 6,000 lbs.
- Computer “Off-the-Shelf” Software
- Office Furniture
- Office Equipment
- Property attached to your building that is not a structural component of the building (i.e.: a printing press, large manufacturing tools, and equipment)
- Certain improvements to existing non-residential buildings: fire suppression, alarms and security systems, HVAC, and roofing.
Why elect to take the deduction?
Why not?! When the IRS throws you a bone, you take it! Section 179 has expanded over the years, going from $250,000 in 2012 to one million for the 2018 tax year. It is projected to grow in coming years as well. It aims to encourage economic growth and smart investments in SMBs. Section 179 is taken on an item by item basis, so you don’t have to claim it for all qualifying equipment if you prefer not to. One other interesting point is that this section has been amended. Initially, you were not allowed to claim Section 179 for previous tax years. However, you are now able to amend and elect Section 179 if you previously did not for tax years beginning after 2007 through the current year. This deduction has many benefits that could be a potential solution for all kinds of SMBs.
There are other options available from the IRS if this doesn’t afford a full advantage to your business. A common option is the Modified Accelerated Cost Recovery System or MACRS. If elected, this takes the property you have and breaks down depreciation over a certain amount of years. This option gets a bit more complicated, but as long as your accountant is on top of your books, it should be fairly straight-forward. It’s important to look into these items now and begin preparing for tax time. Take advantage of these things and put your business in line for success.
*We are not tax professionals. We are simply an SMB that has been able to take advantage of Tax 179 and want you to be able to as well. Please consult with your accountant for full rules, regulations, and execution.