Be a Better Buyer — Part 4 — IRS Section 179

Posted by Steve Gatter on Dec 6, 2016 in News

An extraordinary tax reduction opportunity, section 179, is yet again available for American businesses, and more specifically, small businesses.

Every year the US Congress approves section 179 of the IRS Tax code which provides a significant business tax deduction.

In one sentence — Rather than depreciating the acquisition cost of business equipment (be it new, used or leased) over several years or the useful life, the entire cost can be deducted in the year purchased.

The entire cost can be deducted in the same year of purchase.

SIX ESSENTIAL FACTS TO KNOW ABOUT SECTION 179

[1] The deduction limit in 2016 is $500,000.

[2] The equipment must be acquired and put into service in the same calendar year the deduction is taken.

[3] Vehicles can qualify, and so can equipment that is used “partially” for business.

[4] There is a “spending cap” after which the amount of the deduction begins to be reduced. In 2016 this cap is $2,000,000.

[5] “Bonus depreciation” can be used when the “spending cap” is exceeded. Check with your tax adviser or the section 179 website for more insight into this tax accounting tactic.

[6] Section 179 was added to the tax code in 2008 and it might be around for a while longer. The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) has set this $500,000 limit as the annual standard. Prior to this act, the amount was subject to congressional approval each year and businesses were unable to plan.

SOME WEBSITES TO KNOW

Tax Saving calculator
The Section 179 website
The Quick Big Picture Overview

WHAT PURCHASES QUALIFY?

As a general rule, if you use it in your business, it probably qualifies.

The Section 179 website provides a list, and your tax adviser should have the final say so, but as a quick overview, the following purchases are very likely acceptable:

  • Office furniture
  • Office equipment
  • Computer Hardware
  • Computer software
  • Business Vehicles

A QUICK BIG PICTURE OVERVIEW

[1] Section 179 is a section within the US tax code to allow businesses to deduct the full amount of the purchase price of equipment (up to certain limits) in the same year the equipment is purchased.

[2] It is valid on most types of general business equipment as well as “off-the-shelf” software.

[3] It requires just one additional IRS Form 4562.

THE DOOR IS OPEN NOW

Section 179 is a tax incentive that has been re-approved by Congress each year since its inception. And though the PATH Act of 2015 states that this $500,000 deduction is now a permanent part of the code, businesses should, as always, take advantage of tax breaks when they are available.

BE A BETTER BUYER

Over the last several months it’s been a pleasure to work with Dale Brodsky and Fundus Photo to research and write four posts about being a better buyer:

Post I – Purchase factors other than price

Post II – The conflict of interest many sellers have

Post III – The value of appreciation

I hope these briefs enrich your thinking and make you a more discriminating buyer, one who would appreciate Dale and Fundus Photo as your ophthalmic imaging equipment and service provider.

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Steve Gatter serves small business owners as an advocate, an adviser and a writer. Small is Beautiful.