Section 179 of the IRS Tax Code: Small Business Owners Guide to This Amazing Deduction

According to the National Federation of Independent Business (NFIB), 63% of small businesses made capital outlay on equipment in January 2020. That means every company uses a tablet, laptop, smartphone, vehicle, or machinery. In this regard, businesses should consider looking into tax laws that can ease outlays.?

Section 179 of the IRS Tax Code is a great way to save money for your small business. The deduction allows you to deduct the full purchase price of qualifying property from your taxable income, as long as you use it in your trade or business within one year.

It can be challenging to understand all of the terms and definitions that it contains. However, Section 179 of the IRS Tax Code provides an amazing deduction opportunity for small businesses. This blog post will help you better understand this section of the tax code so that your company can take advantage of this great perk.

Six Things Every Small Business Owner Should Know About Section 179

The United States tax code is a highly complicated system that can be difficult to navigate. One of the most valuable deductions for small business owners is Section 179 of the IRS Tax Code. The following are six things every small business owner should know about Section 179:

1) Section 179 Expands

As of January 2017, they expanded Section 179 to allow small business owners and farmers to take advantage. Taxpayers can deduct up to $500,000 in qualifying equipment and software purchased or financed during the year beginning in January 2017 and going all the way through December 31st, 2018.?

The equipment must be financed or purchased before January 2019 for you to take advantage of this deduction.?

2) Section 179 is Limited

Like with the $500,000 threshold for 2018 and 2017, there is a limit to how much you can deduct. The deduction begins to phase out dollar-for-dollar after $200,000 in purchases during the year and completely phases out when it reaches $400,000.?

As small business owners, we understand that this may seem like a large amount of money, but in reality, this $400,000 threshold is not so far away.?

3) Section 179 is a Deduction, Not an Allowance

Section 179 of the IRS Tax Code allows you to deduct up to $500,000 in qualifying equipment and software purchased or financed during the year. It means that it reduces your taxable income, decreasing the amount of tax you have to pay on said income.?

When using Section 179, you are not eligible to take the average depreciation deduction. The only way to get this benefit is through Section 179 of the IRS Tax Code.

4) Time is of the Essence

Every business owner should remember about Section 179 deductions. If you do not use them, they go away. If you purchase qualifying equipment and software in January 2017 with plans to deduct it from your taxes for that year, this deduction will expire at the end of 2017.

5) It is Not a One Time Thing

Section 179 of the IRS Tax Code allows you to deduct up to $500,000 in qualifying equipment and software purchased or financed during the year and can be taken each year for multiple years (not limited to only one time). As long as it meets all other qualifications, Section 179 will remain an option for you to take advantage of.

6) It is a Contraction

It might be hard to believe, but Section 179 of the IRS Tax Code has cutback rules. That means that if you purchase or finance $800,000 in equipment before December 31st, 2018, you can only deduct up to $500,000. The remaining amount will have to be depreciated over the next 15 years.

Keep in mind, too there is a cap on how much money can be written off for vehicles (for business purposes only) each year. The limit was $11,060 through the tax year 2017 and will change depending upon inflation each year.

Another thing to keep in mind is that you cannot use this deduction if you purchase or finance more than $200,000 worth of equipment during the tax year. No matter how much qualifying equipment or software your business buys throughout the year, once it exceeds $200,000, you may not be able to take advantage of Section 179.

Conclusion

It is important to remember that if you have any questions regarding Section 179 and how it applies specifically to your business, a tax professional will help answer these questions. Every taxpayer's situation is different, so you should always contact a professional to determine if this deduction applies specifically to your business.