What the heck is IRS Section 179?

If you are a small business owner in and around Florida, you’ll no doubt be familiar with Section 179. This federal rule allows taxpayers to elect to deduct the costs of certain fixed assets as an expense when they are doing their income tax forms. This can mean SMBs nationwide can enjoy some very beneficial tax breaks. So let’s look at what it can mean for a business like yours.

Section 179 allows you get a tax break on capital equipment you buy or lease for work and business as well as any investments you use to enhance workspaces. In fact nearly all business-use equipment qualifies as a deduction. The best part, especially in the case of IT is that section Section 179 allows businesses to get the entire depreciation deduction in a single year, a practice known as first-year expensing.

All businesses have equipment and property that depreciates in value with time, and this has never been more true than today. Technology moves so fast that even when you get the most state-of-the-art notebook or iPad, it will probably be out of date before the month is out.

In the past, if you were getting new equipment such as staff computers, you had to deduct a portion of each unit’s cost over several years according to the usual depreciation rules. This meant over several years you could only deduct fractions of the overall expense. Section 179 allows you to recover the full purchase price or maybe part of the cost of qualifying equipment, up to a set limit in a single year which makes it useful when it comes to buying items that don’t really have a long lifetime, IT being the prime example.

While Section 179 means you don’t increase your total tax deductions, you do benefit from being able to do it all at once. In the past, many smaller businesses would not buy new equipment until they really needed it, as it would take several years to get the tax write off, and they just wouldn’t feel the benefit. Of course, the equipment has to go into service in the year you’re claiming the deductions.

Section 179 was first drafted back in 2008 by congress as part of the Economic Stimulus Act. Its original aim was to help businesses to invest or reinvest in the future of their own companies and achieve business development goals. So let’s take a look at what is eligible for Section 179

Basically the 179 tax code is aimed at equipment that is needed on an ongoing basis. For most companies this is machinery, computers, software, any office furniture, vehicles, or other tangible goods. All businesses tend to purchase such equipment throughout a year and will need to replace them as they wear out, or buy new ones when the business is growing. The IRS provides a full list that includes:

  • Equipment (machines, etc) bought for business use
  • Tangible personal property used in business
  • Business vehicles with a gross vehicle weight in excess of 6,000 lbs
  • Computers laptops or desktops
  • Printers, infrastructure, all-in-one devices
  • Computer “Off-the-Shelf” Software
  • Office furniture
  • Office equipment

So if your small or medium business is using your software or equipment for more than 50% of the time, which is more than likely, it will be eligible. Businesses can write-off $25,000 for 2015. The total equipment purchase cap is $200,000 for 2015. But remember, to qualify, all equipment and devices must be put into use before the final day of the year.

What is new for 2015?

In 2015, the amount you can deduct as a business expense is changing, and it’s dropped a huge amount, from $500,000 in previous years to just $25,000 for 2015, and you will no longer be able to expense property. So let’s look at this in more detail.

2015 Deduction Limit – $25,000

This deduction is applicable to new and used equipment, as well as those expensive off-the-shelf software packages. This $25,000 limit is only good for 2015, and the equipment or software must be financed/purchased and put into service by the end of the final day of the year, ie 12/31/2015.

2015 Spending Cap on equipment purchases – $200,000

$200,000 is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap ensures that Section 179 remains a “small business tax incentive”.

Bonus Depreciation: not available in 2015

In previous years, Bonus Depreciation would be taken after the Section 179 Spending Cap was  reached and was available for new equipment only but Bonus Depreciation has not been taken out of the legislation altogether.

If you want to know more about the ins and outs of Section 179 or want advice on last minute IT purchases and software before the deadline hits, get in touch with the experts here at IT Authorities and we can help. If you want to calculate your Section 179 savings, use this handy calculator.