Whether you are planning to buy or lease new or used equipment in 2018, the Section 179 tax deduction brings plenty to the table to help you save money. And it’s not super complicated to understand: You can deduct the full purchase price for buying or leasing a piece of new or used qualifying equipment – up to $1,000,000 (yes, that’s one million dollars!).
The Section 179 deduction is an incentive to encourage qualifying businesses to buy (or lease) equipment, thereby improving the economy, as well as themselves. Section 179 is used by businesses of all sizes, but small-and medium-sized companies are realizing much-needed tax relief.
Some numbers to keep in mind:
1. 2018 Deduction Limit: $1,000,000
2. 2018 Spending Cap on Equipment Purchases: $2,500,000
3. Bonus Depreciation: 100% for 2018
What does that mean?
1. Total amount that can be written off is $1,000,000 on equipment financed or leased and put into service between Jan. 1, 2018 and the end of the day on Dec. 31, 2018.
2. To qualify for Section 179, you can spend up to $2,500,000 on eligible items during the year. After $2,500,000, the Section 179 deduction begins to be reduced on a dollar per dollar basis and goes away completely after $3,500,000.
3. Here’s where some businesses are really cashing in: Once the Section 179 Spending Cap is reached, a 100% bonus depreciation kicks in for both new and used equipment.
How does it work?
Section 179 gives businesses the opportunity to write off an equipment purchase price, up to $1,000,000, on their taxes for the year they bought it, rather than writing it off a little bit at a time, year after year, as was done with depreciation.
So, how does Section 179 provide more benefits to you, rather than typical depreciation? Depreciation is designed to spread the cost of a fixed asset over the period of its useful life and is intended to match the expense of the asset to the company’s income. So, tax wise, your business will have a slower recovery of cost for the equipment. With Section 179, your cost recovery comes as one lump sum for the year you bought the equipment, allowing you additional money to use in your business in the following years.
For 2018, bonus depreciation is being offered at 100 percent. That means that after you use Section 179 to write off the expense of equipment (up to $1,000,000), you may then be able to apply a bonus depreciation of 50% on the remaining amount. Bonus depreciation is typically more useful to very large businesses spending more than $2,500,000 on equipment.
How much money can you save with Section 179? Click here to find out!
Don’t forget that any equipment you purchase or lease and deduct under Section 179 must be used for business purposes more than 50% of the time in order to qualify.
About leasing and financing
Section 179 has some attractive pieces that apply specifically to leasing and financing. It’s possible that the taxes you save using the Section 179 deduction will most likely exceed your cash outlay for the year.
How’s that? You can deduct the full amount you spent on leasing or financing the qualifying equipment without paying the full amount this year. If you are planning to finance or lease anyway, it makes sense to explore your options under Section 179.
If you haven’t already taken advantage of Section 179’s tax benefits for the current year by purchasing or leasing equipment, it’s important to keep in mind that any equipment you plan on deducting under Section 179 must be in use by end of day Dec. 31, 2018.
With holidays coming up and winter weather on the horizon, you’ll want to make sure you have plenty of training time to get your operators up to speed on any new equipment you purchase before that deadline – if you want to apply Section 179.
Plus, you may find some great fall and end-of-year specials on that piece of equipment you’ve had your eye on – be sure and be ready to take full advantage!
Every business is unique and every business has its own set of specific circumstances. Check with your tax professional to make sure you are getting the most out of Section 179.
At S&L Liftmasters, we put our customers first! Contact us today for more information.