What is the Section 179 tax deduction?
Section 179 deduction allows business owners to immediately get a tax break when they finance, lease, or purchase new equipment. Otherwise, business owners must depreciate the equipment over time, taking a smaller deduction each year for several years.
For small and medium-sized businesses, Section 179 is a desirable option because it is easy to understand, easy to use, and provides faster financial benefits.
The Section 179 deduction for 2020 is 1,040,000 dollars, allowing US companies to deduct the full price of qualified equipment purchases up to that amount, with a total equipment purchase limit of $2,590,000. Additionally, businesses can take advantage of the 100% bonus depreciation on both new and used equipment for the entirety of 2020.
How much money do you get deducted?
The amount deducted depends on the company’s tax bracket rate, but regardless, it will significantly impact the cost of equipment purchased or leased.
Example 1: A tax bracket of 35% with equipment costs of $100,000 will result in $35,000 cost savings on the purchase.
Example 2: A tax bracket of 24% with equipment costs of $375,000 will result in $90,000 cost savings on the purchase.
Why use Section 179?
Savvy business owners take advantage of legal tax incentives to lower operating costs and invest back into their business by adding capital equipment. The taxes saved with the deduction will exceed the cash outlay for the year when combining (i) a properly structured equipment lease or finance agreement with (ii) a full Section 179 deduction.
How do you take advantage?
To qualify for the Section 179 deduction, the equipment and/or software must be purchased (leased or financed) and placed into service by midnight, December 31st of the same year. To claim the deduction, IRS Form 4562 must accompany taxes.
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