Section 179 Deduction of the IRS Tax Code is an immediate expense deduction that business owners can take for purchases of depreciable business equipment.
Continuing to invest in new technology equipment to maximize efficiency is a valuable endeavor for organizations looking for a competitive edge. It's even better when you can maximize tax deductions as well.
Section 179 and Bonus Depreciation are two components of the 2017 TCJA (Tax Cuts and Jobs Act) that present potential tax savings for your organization if you're in the market for copiers, printers, or other related technology hardware or software. To maximize the current incentive, qualifying equipment must be financed or purchased before January 1, 2024. Also of note: Beginning Jan. 1 of this year, bonus depreciation has begun to phase out over the next four years.
What is Section 179?
In short, it's a tax code created to help businesses.
Section 179 Deduction of the IRS Tax Code is an immediate expense deduction that business owners can take for purchases of depreciable business equipment. If you buy (or lease) a piece of qualifying equipment (or software), you can potentially deduct the full purchase price from your gross income.
What is Bonus Depreciation?
According to the Internal Revenue Service, Bonus Depreciation allows business taxpayers to deduct additional depreciation for the cost of qualifying business property, beyond normal depreciation allowances. As it phases out beginning this year, Bonus Depreciation for 2023 is 80%.
Our initial advice: Consult a tax expert.
While this blog is intended to help you better understand the benefits of Section 179 and Bonus Depreciation, it is intended for informational purposes only. Before moving forward, we strongly recommend seeking out the consultation of your qualified tax expert to help you navigate the process.
What type of equipment qualifies?
For Section 179, almost all types of equipment used specifically for business that your company buys or finances will qualify for the Section 179 Deduction. Read more details on qualifying property here. According to Section179.org, this includes:
- Equipment (machines, etc.) purchased for business use
- Tangible personal property used in business
- Business Vehicles with a gross vehicle weight in excess of 6,000 lbs
- Computers
- “Off-the-Shelf” Software
- Office Furniture
- Office Equipment
- Property attached to your building that is not a structural component of the building (i.e.: a printing press, large manufacturing tools and equipment)
- Partial Business Use (equipment that is purchased for business use and personal use: generally, your deduction will be based on the percentage of time you use the equipment for business purposes)
- Certain improvements to existing non-residential buildings: fire suppression, alarms and security systems, HVAC, and roofing.
What about used equipment?
Yes, in both instances, used equipment qualifies.
What are the Section 179 Deduction details in 2023?
2023 Deduction Limit = $1,160,000
This deduction is good on new and used equipment, as well as off-the-shelf software. To take the deduction for the tax year 2023, the equipment must be financed or purchased and put into service between January 1, 2023, and the end of the day on December 31, 2023.
2023 Spending Cap on Equipment Purchases = $4.05 Million
This is up from $3.78 Million in 2022. This 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.
How does software relate to Section 179 Deduction?
Software is typically classified as an intangible asset for tax purposes. However, not all software falls under the same rules for depreciation. There are instances where software is eligible for depreciation and times when it isn’t, depending on how it was acquired and its intended use. If the software was acquired in connection with the acquisition of a significant part of a business, it generally cannot be depreciated. But, according to Section179.org, if the software is:
- Readily available for purchase by the general public,
- Subject to a nonexclusive license, and
- Has not been substantially modified,
In those cases, it can be depreciated and may qualify for the Section 179 deduction.
Is leasing an option?
Yes. Using Section 179 with an Equipment Lease or an Equipment Financing Agreement might be a highly profitable decision for your organization.
Benefits include:
- Immediate Tax Deduction: Deduct the full purchase price in the year the equipment was financed, without having to pay the full amount this year.
- Flexible Financing Options: Personalize the financial arrangements to cater to your specific business needs with adjustable terms.
- Improved Cash Flow: Minimize your tax bill and free up more cash for other vital business expenses.
- Tax Savings Exceed Payments: In many scenarios, the tax savings from the deduction can boost your bank account more than if you never financed the equipment at all.
How can I calculate potential savings? Here's a handy tool.
Interested in crunching the numbers? This handy online calculator will help you visualize a potential tax benefit scenario by leveraging Section 179 of the IRS tax code.
How can Datamax help?
If you're interested in taking advantage of this incentive and reaping the benefits of these tax incentives, we'd love to visit. Additionally, our in-house leasing services offer an added "bonus" to your acquisition journey. With Datamax, you can “lease with ease” and take advantage of technology to grow your business now instead of waiting.
