Section 179 is a tax code that was created to help you deduct the full amount of your business equipment purchases. It’s a great incentive for you to purchase, finance or lease most types of general business equipment and off-the-shelf software in the calendar current year.
The IRS Section 179 Deduction was enacted to help small businesses take a depreciation deduction for certain assets in one year, rather than depreciating them over a longer period of time (typically over a 5 to 6 years).
Some of the IT Equipment You Can Depreciate Under Section 179
What Purchases Don’t Qualify?
Qualified property is tangible, depreciable, personal property which is acquired for use in the active conduct of a trade or business. Land and buildings are not qualified property, but most other property, including office equipment, technology and vehicles, qualifies.
2017 Limits for Section 179
What Doesn’t Qualify for Depreciation?
A Fair Market Value (FMV) Lease isn’t deductible. It generally has lower monthly payments than a Capital Lease or a bank loan, and it’s most often used as a shorter-term lease, unlike a Capital Lease. FMV lease payments are 100% tax deductible as an operating expense but not a capital expense since the equipment is not seen as a purchase.
Rental Agreements don’t qualify either because you’re not the owner of the equipment.
What Types of Business Property Do Qualify?
Cash purchases (including credit card purchases)
$1 Buy Out Leases where you make payments on a piece of equipment, and at the end of the lease term, you buy the equipment for $1.
The property must be purchased and put into service in the year in which you claim the deduction. Putting an asset into service means that you have it set up and working, and you’re using it in your business. Buying a piece of property and then letting it sit and gather dust doesn’t count.
How Section 179 Saves Taxable Income
The typical Modified Accelerated Cost Recovery System (MACRS):
$100,000 Gross Revenue
-$20,000 Normal Depreciation
$80,000 Taxable Income
Here’s how the traditional MACRS method works: For example, if you have a Gross Income of $100,000, and you buy out a $1 phone system valued at $20,000, the MACRS method of depreciation only allows you to depreciate 20% in the first year ($100,000 x 20% = $20,000 in depreciation). You’re left with $80,000 Taxable Income.
With the Section 179 Depreciation:
$100,000 Gross Revenue
-$100,000 Normal Depreciation
$0 Taxable Income
If you have a Gross Income of $100,000, and you buy out a $1 phone system valued at $100,000, the 179 Deduction method of depreciation allows you to depreciate the full amount in one year ($100,000).
Section 179 Can Also Help You Increase Productivity.
Let’s say you employ 20 people who struggle with an old, slow server.
Remember: Section 179 is only available to U.S. companies until the end of the calendar year.
Always consult your Tax Advisor for the best advantage for your business.