How Scranton & Wilkes-Barre Businesses Can Leverage Section 179
The expansion of small and medium-sized businesses often requires strategic investment for optimal growth and success. One of the best ways to invest in your venture is by purchasing or upgrading office equipment. Although this is essential to ensure quality and more efficient work, it is often a great expense. Luckily, there are ways to make extensive purchases that fit your budget and increase your net income.
One way to save on new software or equipment is to leverage the Section 179 deduction. This incentive allows organizations to get considerable savings during tax time by deducting qualifying business equipment or software. These savings will make acquiring equipment more affordable for you.
What is Section 179?
Section 179 is a tax reward that allows small and medium-sized businesses to write off the whole purchase price of qualifying equipment in the year you bought it.
If a business purchased a piece of software or equipment before Section 179, it would have to write it off over its standard recovery time. For instance, if a business financed $50,000 in equipment depreciable over five years, it could only write off $10,000 of the price in the year they acquired it. Then, $10,000 per year for the four years after that. This made it hard for some small businesses to purchase the equipment they required. However, under Section 179, that same company can write off the whole $50,000 the same year they bought the equipment.
What Equipment and Software Qualify for Section 179?
Most business equipment or software your organization buys or finances will qualify for this tax benefit. Every business requires equipment continuously, be it office furniture, multifunctional printers, computers, vehicles, machinery, or other tangible assets. It’s likely that your company will purchase most of the items during the year and will do so continuously. The Section 179 deduction favors purchasing or leasing software and equipment financially attractive during the calendar year.
Here is the equipment that qualifies for the Section 179 Deduction. However, keep in mind that for you to qualify for the deduction, it’s required that you buy and put them in service between January 1 and December 31 of the tax year you are claiming:
- Equipment for business use
- Company vehicles with a gross vehicle weight above 6,000 pounds
- Tangible personal assets used in business
- Office equipment
- Computer Off-the-Shelf software
- Office furniture
- Assets attached to your building that are not a structural component of the property. These may include security systems, HVAC, alarms, and fire suppression.
- Partial Business Use. These include equipment purchased for personal and business use. Your deduction will be based on the percentage of time you use the equipment for business objectives.
- Specific improvements to existing non-residential property. These include huge manufacturing tools and equipment or digital printing presses.
This equipment and software qualify as whether new or used, but must be new to you, regardless of whether they were bought outright, financed, or leased.
How Small and Medium-Sized Enterprises Can Benefit From Section 179
The aim of tax breaks is to promote businesses and stimulate the economy. The Section 179 deduction is no different. Small and medium-sized ventures have several benefits from Section 179.
Essentially, the write-off dramatically reduces the entry barriers in acquiring equipment for small businesses. By leveraging Section 179, companies can deduct the entire purchase price of qualifying assets before settling their loans.
As a result, organizations can begin making profits immediately and keep their fixed capital healthy. Section 179 allows businesses to purchase all equipment and software they require by the end of a year and build up their infrastructure without breaking the bank.
Savings received from Section 179 deductions can be directed towards growing other sections of the business as well. Section 179 is mainly meant for small business owners to grow their company by purchasing new items.
How Small Enterprises Can Take Advantage of Section 179
Here is how Wilkes-Barre and Scranton Businesses can help you take advantage of this tax write-off.
Ensure That Your Asset is Eligible for Section 179
Make sure that your equipment is eligible for this tax write-off to take advantage of Section 179. To qualify for the deduction, the asset in question must be:
- Used in the active conduct of business
- Bought from an unrelated party
Put the Asset into Use
Your company must begin using the equipment or software first before claiming the Section 179 tax deduction. For instance, if you purchase a piece of equipment or software in December 2021 but don’t begin using it until 2022, wait until 2022 to claim the write-off.
Claim the Deduction
The last step is to claim the Section 179 deduction. You may claim this deduction in the first section of IRS Form 4562. Ensure to include the asset description, its costs, and the amount you are claiming as a Section 179 deduction in Form 4562.
There are some limits to the Section 179 deductions. For instance, the maximum amount you can deduct is restricted, and the limit changes each year. For 2021, companies can deduct up to $1,050,000 of the value of the eligible assets purchased and put into use by December 31. In addition, the total amount of equipment acquired is capped to a maximum of $2,620,000.
Section 179 may change every year without notice, so it is good to take advantage of this charitable code when it is available.
Section 179 offers small and medium-sized a significant opportunity to optimize purchasing power. Recent changes have also offered small business owners generous new and higher deduction limits. Much of the equipment your company will purchase, finance, or lease qualifies for the deduction, so ensure you do your homework to confirm that your business is taking advantage of the Section 179 Deduction this year.
If you need to take your business to the next level, tech42 LLC IT experts can help you grow your company’s tech infrastructure by leveraging Section 179. Contact us for more information about Section 179 and all the benefits it can bring to your business.
Special thanks to my friend James Forbis with 4BIS.COM for his help with this research. He is a great Cinncinati IT services professional
Michael is the President and owner of tech42 LLC. He has more than 20 years of cross-discipline experience in the information technology industry, and has worked both as a network engineer and software developer. He is a passionate student of the interaction between technology and business and leveraging that knowledge to help tech42’s clients achieve both technology and business success.