SMB Guide to IRS Section 179
December 12, 2018
Business owners, especially those of small to mid-size businesses, are almost always worried about taxes and focused on maximizing deductions. As the close of the year approaches, business owners should look to the IRS Section 179 tax incentive to improve business equipment and technology, maximize deductions and lower taxes.
Basics of Section 179
The IRS Section 179 tax incentive was designed for SMBs to have the opportunity to invest back into their business by purchasing new equipment and technology before the end of the year. Companies are able to declare a full deduction in the same year that the equipment or technology was purchased rather than deducting it a little at a time over multiple years. This one-time write-off reduces tax liabilities and gives companies an immediate tax benefit.
Key details of the 2018 Section 179 incentive include:
- All equipment must be financed or purchased and put into service before EOD on December 31, 2018
- $2,500,000 spending cap for 2018
- $1,000,000 deduction limit
- 100% bonus depreciation on new equipment
*This bonus depreciation is usually taken after the cap spending is reached.
See the possible savings, based on the 2018 Section 179 Tax Deduction Calculator below:
Cost of Equipment: $250,000
(Assuming a tax bracket of 35%)
Section 179 Deduction: $250,000
Total First Year Deduction: $250,000
Cash Saving on your Purchase: $87,500
Lowered Cost of Equipment: $162,500 (after Tax Savings)
While the Section 179 incentive has been active in recent years, there is no guarantee that the rates will remain the same, or that it will be available again in 2019. Businesses who have considered upgrading technology or equipment should take advantage of this incentive in 2018. In 2017, the maximum deduction limit was only $500,000 and the bonus depreciation was 50% on new equipment. The 2018 tax reforms put new limits and a new spending cap in place, making it one of the best years to purchase new equipment and technology.
According to the NFIB Research Foundation’s November 2018 Small Business Optimism Index, 62% of business are planning capital expenditures and 45% of those business reported planned spending on new equipment. Small businesses are planning to take advantage of this incentive, and invest back into their businesses with new equipment and technology. According to Spiceworks Annual Report, small businesses are making significant increases to their hardware budgets in 2019. SMBs are usually slower to adapt to emerging technology trends, but with an incentive like Section 179 in place, businesses can get ahead of the competition.
To qualify for the 2018 incentive, equipment must be financed/purchased and put into service before the end of day on December 31st, 2018. The purchased equipment must also be used primarily for business purposes, more than 50% of the time. There is still plenty of time to take advantage of this incentive in 2018, as there is no guarantee that the limits will remain the same for 2019.
Impact offers a wide range of equipment that qualifies for the Section 179 incentive, and with a one source business model, the purchase of equipment includes expert technicians and engineers who guarantee fast, reliable service. Possible qualified purchases include computers, copiers, printers, servers, off-shelf software, and more. Learn more about Impact’s technology offerings and request a demo today!
*Businesses should consult a tax professional to learn if their business qualifies for Section 179.