The Section 179 tax benefit was created to boost the economy by helping small to medium businesses save money on qualifying equipment purchases – in the year the expense is incurred. Prior to Section 179, companies could only write off the value of the equipment’s depreciation each year. So, if a business purchased $100,000 in equipment that was depreciable over five years, companies could only deduct $20,000 each of the five years. Now, with Section 179, businesses can deduct the full cost of the equipment in year one! For 2020, companies can deduct up to $1.04 million in qualifying purchases, with a maximum spend of $2.59 million. The Section 179 tax incentive applies to both new and used equipment that is purchased or leased and put into service by December 31, 2020.
|Cost of Equipment||$100,000|
|Assuming a Tax Bracket of||30%|
|Section 179 Deduction||$100,000|
|Tax Savings on Purchase||$30,000|
|Lowered Cost of Equipment (after tax savings)||$70,000|
The following IRS requirements must be met for businesses and equipment purchases to be eligible for the Section 179 tax deduction:
Get Your Equipment Before the Deadline
The deadline to take advantage of the Section 179 deduction is December 31, 2020, which means all qualifying equipment must be purchased or financed, delivered and put into service by December 31, 2020. This tax benefit is not automatically applied, and businesses must elect this deduction by filling out IRS Form 4562.
Follow These Steps:
*Please consult with a qualified tax professional to determine if your business purchases are eligible for Section 179 tax deductions and whether or not taking the full deduction in the first year makes sense for your business.