The first quarter of the new year… besides cool weather and new opportunities, we analyze our 2018 income or revenue to prepare for tax returns. As a small business, one area for tax savings you may benefit from is Section 179. Section 179 is a tax incentive that lets eligible small business owners accelerate deductions on equipment and assets they purchase for their business or immediately expense the cost of qualifying property—rather than recovering such costs through depreciation deductions.
We've talked in the past about how small businesses can to maximize deductions and Ascentium has developed a Section 179 calculator & FAQ page to help you ascertain how you may take advantage of these tax savings. For a brief update on Section 179 and how to treat purchases made in 2018, read on!
Section 179 is part of the tax code, which the Internal Revenue Service (IRS) instituted to make it easier for businesses to deduct the full cost of equipment. It's aimed at general business equipment, as well as technology. In other words, if you use it in your business, it probably qualifies. It's a great incentive for businesses to purchase, finance or lease equipment—just use an IRS form and you may be on your way to tax savings!
If you have used the Section 179 deduction in the past, please note that the deduction amount changes each year, so you need to stay on top of the deductions to ensure you are maximizing your tax savings.
There are several new updates that small business should be aware of for the 2018 tax year due to the Tax Cuts and Jobs Act of 2017. The Tax Cuts and Jobs Act increased the Section 179 benefit for businesses that bought assets and started using them within the 2018 tax year. These benefits will stay the same (although indexed for inflation) over the next few years.
A few specifics for Section 179 that small businesses should be aware of:
Section 179 deduction dollar limits. Starting with your 2018 tax filing, the maximum amount you can elect to deduct for most section 179 property you placed in service is $1,000,000. This limit is reduced, however, if the eligible property placed in service during 2018 exceeds $2,500,000.
Retroactive bonus depreciation. The bonus depreciation is 100% and has been made retroactive to September 27, 2017 and good through tax year 2022. The bonus depreciation allowance also changed and now includes used equipment.
Section 179 qualified real property. Starting in 2018 with the tax reform, Section 179 qualified real property has expanded and is qualified improvement property (as defined in section 168(e)(6) –accelerated cost recovery), and certain specified improvements to nonresidential real property placed in service after the nonresidential real property was first placed in service.
Computers and related peripheral equipment. Computers and equipment placed in service after December 31, 2017, in tax years ending after December 31, 2017, are not listed property.
Electing real property trade or business and electing farm business. An electing real property trade or business (as defined in section 163(j)(7)(B)) and electing farming business (as defined in section 163(j)(7)(C)) are required to use the alternative depreciation system for certain property to figure depreciation under MACRS for tax years beginning after December 31, 2017.
There will be an adjustment for inflation starting in 2019. The Section 179 maximum expensing amount for tax years beginning in 2019 will be $1,020,000 with a dollar-for-dollar phase-out threshold of $2,550,000. Similar to 2018, 100% expensing will be allowed for eligible property placed into service between 9/27/17 and year end 2022.
If you are a small business, you should be taking advantage of these tax incentives to lower operating costs. And if you did not make any qualifying purchases in 2018, you may want to consider one for 2019!
Ascentium Capital offers flexible equipment leasing and financing solutions to support your business growth. Contact us today for a no obligation quote.
The information provided this article is not intended to be tax advice. Each business situation is different and tax regulations change frequently. This is informational only and we suggest you consult with your tax professional for Section 179 specifics.