The section 179 tax deduction allows business owners to get a large upfront tax deduction with the purchase of a brand-new asset. However, not all equipment qualifies for the 179 deduction, and even for the equipment which does qualify, you usually have to take deductions over the lifetime of the equipment.
Here’s what you need to know about section 179.
Section 179 tax depreciation
For almost any kind of equipment you purchase such as machinery, vehicles, or furniture, you usually can’t deduct the entire purchase amount in that first year. Instead, the IRS requires you to split the cost over the anticipated lifespan of the machinery, and this is known as its depreciation schedule. As an example, computers have a five-year depreciation schedule, so you can deduct 20% of the purchase price each of those five years.
This all changes with the section 179 deduction, which allows you to deduct the entire purchase price in the very first year. This deduction allows you to purchase cars, machines, tools, technology, and other types of equipment which are required for the operation of your business. Even if you are financing the equipment with a loan that you’ve obtained, you can still deduct the entire purchase price, and the borrowing costs as well. For 2018, that means that your small business could deduct up to $1 million worth of equipment purchases this year.
When you should take the section 179 deduction
Whenever you purchase a piece of equipment which is eligible for the section 179 deduction, you should probably use it, because that will free up a great deal of extra cash which you can use for your business. It will also avoid the necessity of having to keep track of the depreciation schedule over a number of years.
About the only time that you should not take the section 179 deduction is when your current business tax rate is very low and you anticipate owing a lot more in the future. By deferring the section 179 deduction, you’ll be able to claim it in a later year when your tax rates are still low, and when it will save you more money.
New equipment can help your business
For many companies, all that’s needed in order to get to that next level is a piece of new equipment, which can help achieve some of your business objectives. Contact us at Steadfast Funding Partners to find out how we may be able to assist with funding for your new equipment.