Get Small Business Tax Benefits this Year from Section 179
Get Small Business Tax Benefits
Businesses are now able to deduct the full purchase (or lease) price for qualifying equipment and/or software bought or financed during the tax year. See how you can benefit from Section 179 tax incentives designed to help small businesses.
With the end of the year in sight, now may be a good time to make moves that could potentially improve your tax situation. And believe it or not, there is still a sizeable tax benefit for small businesses in section 179 of the tax code.
What Is Section 179?
Businesses are now able to deduct the full purchase (or lease) price for qualifying equipment and/or
software bought or financed during the tax year. That’s great news if you’ve purchased, leased, or plan to purchase or lease a new or used Bobcat machine or any other large equipment this year. Leased equipment qualifies only to the extent the lease is treated as a capital lease. Section 179 is one of the few government incentives available to small businesses, and it has been included in many of the recent stimulus acts and congressional tax bills. Although large businesses also benefit from section 179 and bonus depreciation, the original target of this legislation was much-needed tax relief for small businesses.
Here’s How Section 179 Works
In previous years, businesses commonly spread the write-off of qualifying equipment over time through depreciation. Yet, there has always been a preference among businesses to deduct the full purchase price in the year of acquisition. Section 179 is the solution to this preference—it enables your business to write off the entire purchase price of qualifying equipment in the current tax year.
With Section 179, there's no need to wait. The entire cost of qualifying equipment can be expensed on the 2023 tax return, offering immediate financial relief for your business. The cap for this deduction is generous, allowing businesses to write off up to $1,160,000, making it a powerful tool for optimizing your tax strategy and boosting your cash flow.
But There Are Limits
It's important to note that there are limits and caps associated with Section 179. The maximum amount that can be written off is $1,160,000, and there are restrictions on the total amount of equipment purchased, set at $2,890,000. Once this spending limit is surpassed, the deduction starts to phase out on a dollar-for-dollar basis. This characteristic makes Section 179 particularly beneficial for small- and medium-sized businesses.
Furthermore, the total deduction for Section 179 property cannot exceed the taxable income derived from the trade or business. Any excess deduction that cannot be utilized in the current year can be carried forward for deduction in future years.
It's crucial to be aware that since the Section 179 expense deduction functions as a type of accelerated depreciation, recapture of those accelerated deductions may come into play if the equipment is sold or disposed of in subsequent periods. Careful consideration of these factors is advised to ensure accurate financial planning and compliance with tax regulations.
Who Qualifies?
In tax year 2023, any company that procures, funds, or leases new or used business equipment may be eligible for the section 179 deduction. To qualify, the equipment must be utilized for business purposes for over 50% of the time and must be put into service between January 1, 2023, and December 31, 2023. To determine the amount eligible for section 179, simply multiply the equipment cost by the percentage of business use.
The Difference Between Section 179 and Bonus Depreciation
Some years offer bonus depreciation, while in others it's not available. For the 2023 tax year, it's being offered at 80%. The most significant change is that both new and used equipment qualify for the section 179 deduction, as long as the used equipment is "new to you". Until the latest tax law was passed, bonus depreciation only covered new equipment. However, in a departure from recent years, bonus depreciation now also includes used equipment. Bonus depreciation is particularly beneficial for very large businesses that spend more than the section 179 spending cap (currently $2,890,000) on new capital equipment. Additionally, businesses with a net loss can still deduct some of the cost of new equipment and carry forward the loss. When applying these provisions, section 179 is generally taken first, followed by bonus depreciation, unless the business had no taxable profit. In that case, the unprofitable business is allowed to carry the loss forward to future years.
Time to Shop?
Absolutely, it's essential to consult with your tax advisor or accountant for personalized guidance. That being said, if you've been eyeing that Bobcat® machine and haven't made the purchase yet, the current period could present a favorable opportunity. With Section 179 offering potential tax advantages, acquiring the equipment now might align strategically with your business's financial goals. Take advantage of this opportune time to discuss your specific situation with your financial professionals and explore how investing in the Bobcat® machine could positively impact your overall tax strategy.
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