The good news is that the Section 179 $500,000 deduction has been made permanent, allowing small business owners to do better long-term planning for 2016 and beyond. The deduction, which is aimed at stimulating the economy, covers new or used equipment such as warehouse storage systems and shelving. Under the provision, business owners can deduct the full purchase price of qualifying property
from their gross income in the year they bought it (called first year expensing), rather than writing off a little at a time through depreciation.
The Section 179 deduction is truly a small business deduction as there is a $500,000 limit on the total amount of business property expenses you can deduct each year. There is also a limit on the total amount of Section 179 property a business can purchase each year before a phase-out in the deduction begins. The amount one can deduct each year is reduced dollar for dollar by the amount the business investment purchases exceed the annual investment limit. The annual business investment limit is now at $2 million, and this limit was also made permanent by Congress in 2015.
More Good News
The “more good news” is that the Bonus Depreciation has been extended to 2019, giving business owners the ability to deduct, in a single year, a substantial amount of a new long-term asset’s cost. Once you exceed the maximum 179 deduction of $500,000, bonus depreciation kicks in at 50 percent until you reach the maximum qualifying amount of $2,000,000. It then begins to be be reduced dollar for dollar until you reach $2,500,000, where it is then completely eliminated. It is important to note that the bonus depreciation is only available for NEW equipment, and that in 2018 bonus depreciation will phase down to 40 percent in 2018 and 30 percent in 2019.
What Does This Mean For Warehousing?
Up until last year, the Section 179 deduction limits could change each year without notice; it sometimes even changed mid-year, making it difficult to plan your equipment purchases based on the tax code. The new $500,000 expensing limit will give you better long-term planning options, as well as simplify tax preparation, improve cash flow, and make it easier for you to reinvest in your business and your workforce.
While the bonus depreciation has not been made permanent, you still have a year and a half to take advantage of the full 50% depreciation on qualifying equipment. Keep in mind that the equipment must not only be purchased by year-end, it must also be put in service before year-end for you to take the deduction for that year. Here’s an *example of the savings you could reap on the purchase of $800,000 in new equipment in 2016 or 2017. (Go here
to use an online Section 179 calculator to input and calculate your own numbers.)
*This is only an example of the savings you could possibly reap. Note that you may only take Section 179 deductions up to your business income total. Any costs not deductible in one year due to the business income limitation can be carried over to the next year. Unlike section 179 expensing, taxpayers do not need net income to take bonus depreciation deductions. While the Section 179 Deduction offers a tremendous advantage to small businesses across the country, it is up to you to make sure that any deductions you are taking are within the legal requirements of Section 179. Please consult your tax preparer to ensure that you are complying with IRS §179.
Here at Next Level, we understand the impact of operational costs on any size business and we are committed to helping our customers increase efficiency and profitability through lower material expenditures and cost efficient design solutions. Contact us today to help you plan your 2016 and 2017 equipment purchases to best take advantage of this generous tax code!
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