As Benjamin Franklin once said, "nothing can be said to be certain, except death and taxes" and people have always worked very hard to delay one and reduce the other. Thankfully for small business owners there is a tax incentive that could have a significant impact and reduce their tax burden – Section 179. Section 179 enables small business owners to accelerate deductions on eligible equipment and assets they purchase for their business.
There are many ways businesses can look to maximize deductions, however, Section 179 is one that can really make a difference. Ascentium has developed a quick “Frequently Asked Questions” guide to Section 179:
Congress passed into law the deduction that is part of the Internal Revenue Code (IRC) to make it easier for businesses – especially small-to-medium-sized companies – to be able to deduct a portion or the full cost of acquired equipment. For 2016, businesses may deduct up to $500,000 in this tax year for qualifying purchases on equipment and assets put into business use before December 31, 2016. This is in contrast to the traditional straight line depreciation method that stretches the deduction out over the asset’s useful life – thus allowing businesses to redeploy that savings to invest in growth.
You may also qualify for a 50% bonus depreciation if you exceed the maximum purchases allowed by Section 179. The Protecting Americans from Tax Hikes Act (PATH Act) was passed by Congress in 2015 as a temporary measure to help the ailing economy. The PATH Act allows a business owner a bonus depreciation of 50% through 2017, then 40% in 2018 and finally 30% through the end of 2019.
While the popular notion of Section 179 is that it's used only for large equipment items, that's not case. You may use the deduction for:
The good news is you’re in luck - you may still qualify for section 179 even if you financed the equipment. When financing your purchase, be sure to check with your accountant and tax advisor to ensure what type of financing if best for your company.
By pairing Section 179 with equipment financing you can take the immediate deduction while still paying for the equipment over time and not reducing cash reserves.
We have a Section 179 Tax Savings Calculator where you can calculate and see your potential savings. Feel free to check it out – and think about making that purchase you were on the fence about in Q4 to take advantage of the tax deduction.
Thankfully, it won't take much time out of your busy schedule. Your tax advisor can walk you through how to fill out Form 4562 to include the form with your annual tax return by the deadline. Your advisor can also help you understand any additional restrictions that may apply to your individual situation.
Ascentium Capital always looks to be a good partner with our customers and deliver information that may help your business, but we want to remind you to be sure to consult with your accountant or tax advisor for how to properly treat your financials and tax filing.
We also have special financing promotions available through year-end to help with your Section 179 Eligible Purchases. Contact us today to find out more!