Section 179 Tax Deduction – What Is It, and How Might It Apply to You?
Did you know…Section 179 tax deduction season is approaching!
What exactly is section 179? How might it apply to you and your business?
Essentially, Section 179 allows business owners to deduct the purchase price of equipment used during the year. More specifically, Section 179 of the IRC allows businesses to take an immediate deduction for business expenses related to assets that will depreciate in value… like equipment, vehicles, and software.
This allows businesses to lower their current-year tax liability rather than capitalizing an asset and depreciating it over time in future tax years. In simpler terms: depreciation expense helps business owners keep more money!
According to Investopedia, the max amount you can elect to deduct for most section 179 property you placed in service in tax years beginning in 2022 is $1,080,000, according to the Internal Revenue Service (IRS), which also limits to the total amount of the equipment purchased to a maximum of $2,700,000 in order to qualify.
Equipment and other vehicles purchased under Section 179 must be used for business purposes more than 50% of the time to qualify for the deduction. Just multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for Section 179.
For example…Imagine a company has purchased a new piece of machinery used for business purposes only, at a cost of $50,000 and zero salvage value. The company could take that machinery and depreciate over the course of 5 years as $10,000 each year. Section 179 would instead allow the company to write off the entire $50,000 in the current year.
This has made a huge difference for many businesses of varying sizes. Businesses have used Section 179 to purchase vital equipment immediately, instead of waiting. For most small businesses, the entire cost of qualifying equipment can be written-off on the 2024 tax return (up to $1,220,000).
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