Use Section 179 to take a $500K deduction for your material handling equipment purchase this year.
The Section 179 tax deductions can provide substantial tax relief for business owners who are purchasing equipment, and it’s not too late to take advantage of this juicy deduction. (Though keep in mind the equipment must be installed and put into service by December 31, 2016, so don’t make the mistake of thinking that as long as you purchase before the end of the you’re set to take the deduction.)
How Does the Section 179 Deduction Work
The Section 179 deduction isn’t a mysterious or complicated tax code. Section 179 of the IRS tax code allows all businesses to deduct the full purchase price (rather than write them off a little at a time through depreciation) of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income.
Limits of the Section 179 Deduction
Section 179 does come with limits. There is a $500,000 limit on the total amount of business property expenses you can deduct each year. There is also a $2,000,000 limit on the total amount of Section 179 property a business can purchase each year before a phase-out in the deduction begins.
What’s the Bonus Depreciation?
Once you exceed the maximum 179 deduction of $500,000, bonus depreciation kicks i n (on new equipment only). While not always offered, bonus depreciation is alive and well in 2016 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.
Businesses with a net loss in a given tax year qualify to carry-forward the Bonus Depreciation to a future year. When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business has no taxable profit in the given tax year.
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.
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. 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.
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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!