Section 179 of the IRS tax code permits businesses to subtract the entire purchase price of qualifying equipment and/or software purchased or financed during the tax year whether it is new or used from their gross income potentially providing the company with greater tax relief. The Section 179 deduction has also been incorporated in many of the recent Stimulus Acts and Congressional Tax Bills.
For most small businesses Section 179 allows for the entire cost of qualifying equipment to be eligible and written-off on the 2020 tax return (up to $1,040,000). Section 179 caps the total amount that can be written off at $1,040,000, and the equipment purchase price at $2,590,000 for the 2020 tax year. The deduction is eliminated once $3,630,000 in purchases is reached, an amount usually applicable to small and medium-sized businesses in a calendar year.
Does my business qualify for Section 179 Deductions?
All business entities that purchase, finance, and/or lease new or used business equipment and place it into service during tax year 2020 should qualify for the Section 179 deduction presuming they are within the spending limits. Although $1,040,000 of assets can be expensed that amount phases out dollar for dollar when $2,590,000 of qualified assets are placed in service and used for more than 50% of the time toward business purposes to qualify this deduction.
What Happened to Bonus Depreciation?
Bonus depreciation has been useful to qualifying large business entities but was not always available as a deduction every year while restricting the deduction to include only new equipment. As of this year not only is bonus depreciation available, but it now allows deductions of used inventory beyond the Section 179 spending caps at 100% until 2026.
Even businesses with net losses or no taxable profits still qualify to deduct some of their equipment costs and carry their losses forward under Section 179 and with Bonus Depreciation deductions.
When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business had no taxable profit, because the unprofitable business is allowed to carry the loss forward to future years.
For basic guidelines regarding when and how to apply these provisions, which forms are required, to evaluate your equipment purchases for deductibility, or to discuss your tax planning matters please refer to the contact page at JeffreyLevine.Solutions to schedule your free consultation. I am looking forward to hearing from you.