Overview of Section 179 of the Tax Code
It’s December; that time of year when all thoughts turn to year-end deductions. Well, maybe not, but they should, at least some of our thoughts anyway. The IRS tax code has some changes for 2017, specifically in Section 179, the business deduction section. This is a very high-level overview of what this section means for businesses and how to use these changes in the most advantageous way. Full disclaimer: we are not tax experts, and encourage you to talk with your tax consultant before doing anything; this is merely an overview of Section 179 of the tax code, and what it (could) mean for your business.
What is Section 179?
Unless you are an accountant, tax attorney, or just love complicated tax law, the phrase “Section 179 of the IRS tax code” probably sounds nefarious and complicated; it is neither. It's an incentive created by the U.S. government to encourage businesses to buy equipment and invest in said business. While large businesses do benefit from Section 179, the original target of this legislation was much needed tax relief for small businesses.
This section of the tax code that permits businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if your business buys (or leases) a piece of qualifying equipment, you can deduct the full purchase price from your company’s gross income.
What is New in Section 179?
The deduction limit in 2017 is now $510,000. This deduction is good on new and used equipment, as well as off-the-shelf software. To take the deduction for tax year 2017, the equipment must be financed/purchased and put into service between January 1, 2017 and the end of the day on December 31, 2017.
The spending cap on equipment purchases in 2017 is $2,030,000. 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. This spending cap makes Section 179 a true "small business tax incentive" as larger businesses that spend more than $2.5 million on equipment do not get the deduction.
The Bonus Depreciation in 2017 is 50%. This is another tax incentive that encourages investment in one’s business. Bonus Depreciation is generally taken after the Section 179 Spending Cap is reached.
What is the Difference between Section 179 and Bonus Depreciation?
The difference between the two is the type of equipment to which they apply. Section 179 is for both new and used equipment (as long as the used equipment is "new to you"), while Bonus Depreciation covers new equipment only. When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation. This is unless the business had no taxable profit, because the unprofitable business is allowed to carry the loss forward to future years.
There are different parameters on types of equipment and other qualifying conditions, for or more details on this section of the tax code and how to use your tax deductions wisely, please consult your tax consultant.
To talk to someone about the software and/or services you purchased from ArcherPoint this year, or if you are planning to make purchases within the next year, please contact us today for assistance with budgeting for your future purchases.