Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or even financed during the tax year. This means if you buy (or Lease) qualifying equipment or software, you can deduct the Full Price from your gross income. It’s an incentive created by the U.S. Government to encourage businesses to buy equipment and invest in themselves.
What are the benefits??
Normally, when your business purchases certain items with useful lives of greater than one, your business would deduct a portion of the asset each year, also known as depreciation. For example, if ABC Company spends $50,000 on a new delivery truck and the expected useful life is 5 years, the business would write off $10,000 per year. Under Section 179, the small business would be able to write off the entire equipment purchase in the year they made the purchase (this was only an example).
For 2016, qualifying purchases up to $500,000 can be written off.
Section 179 does come with limits, for 2016 the total amount written off is capped at $500,000 and begins to phase out on a dollar-for-dollar basis after $2,000,000 is spent by a given business. These limitations indicate that this is truly a benefit aimed at small and medium-sized businesses.
Do you Qualify?
All businesses that purchase and/or lease less than $2,000,000 in new or used business equipment during 2016 should qualify for the Section 179 Deduction. In order to qualify all qualifying equipment and software must be purchased and placed into service between January 1, 2016 and December 31, 2016. Below is a list of qualify equipment:
- Equipment (machines, etc) purchased for business use
- Tangible personal property used in business
- Business Vehicles with a gross vehicle weight in excess 6,000 lbs (additional restrictions apply on lighter vehicles)
- Off-the-Shelf Software
- Office Furniture
- Office Equipment
- Partial Business Use Equipment
Time is Running Out – Act Now
The IRS code can change each year without notice, especially during and after election periods.
DISCLAIMER: Before you go out and purchase equipment and/or software, please consult your tax professional or contact us to make sure your purchase will meet the Section 179 Deduction guidelines.