The air is getting crisp, the leaves are falling, and your section 179 deductions are almost due. Don’t let taxes stress you out this holiday season. In this blog post, we will go over the area 179 basics to make sure that you make the most of your deductions and have everything you need.
Back to Basics:
For those who don’t know or need a refresher, the Section 179 deduction is a small business tax incentive the government allocates for businesses to invest in themselves and the economy.
The deduction covers anything tangible and not affixed to your typical brick and mortar building. With that said, some improvements do qualify for a deduction, such as fire suppression, alarms and security systems, HVAC, and roofing. Other eligible items are equipment, business vehicles, computers, software, office furniture, and partial business use items. For a fully comprehensive list, please see the resources below.
One thing to keep in mind is that there is a limit on how much you can deduct and the time frame in which you can do it. This year, 2020, companies can deduct the full price of equipment purchases up to $1,040,000 with limited total equipment purchase at $2,590,000. For small businesses, this means you can remove the entire purchase price from your gross income! You can deduct items that are both leased or financed and bought purchased outright. Equipment can also qualify for the deduction if it was previously owned or refurbished as long as it is new to you. Additionally, you can take advantage of the 100% bonus depreciation on both new and used equipment for all of 2020.
Section 179 is not automatic but instead election based. To elect to do it, all you have to do is download IRS form 4562 and attach it to your tax return. You should complete the deduction form while filing your taxes for the year. You can claim section 179 deductions only for the equipment you have leased or purchased AND placed into service between Jan 1st and Dec 31st of the year. It must be done by Dec 31st at midnight. For an example of how to fill out the form, see below.
The section 179 deduction is an excellent opportunity to maximize your purchasing power as a small business. If you need an upgrade or are looking into some new equipment, now is the time to do it. Make sure to talk to your CPA or tax specialist about what options are best for you.