GET THE IMAGING EQUIPMENT YOU NEED AND BEAT THE TAX MAN TOO!
Monday, October 17, 2016
By Craig Blackburn
Section 179 Deduction Increased to $500,000
Small businesses received a nice gift from the Federal Government at the end of December. The House and Senate passed the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act) on 12/18/15 essentially making the section 179 deduction for qualified assets permanent and increasing the Section 179 limit from $25,000 to $500,000. The $500,000 limit is retroactive for qualified 2015 asset purchases, it also increases the limit for Section 179 deduction to $500,000 until further notice.
Essentially this means that qualified asset purchases can be deducted 100% up to a limit of $500,000 for tax years 2015 and 2016. Additionally, this limit will be adjusted upward to account for inflation by $10,000 per year.
For businesses who have qualified asset purchases above $2,000,000 during a tax year the Section 179 deduction will be reduced dollar-for-dollar with an elimination of the deduction for businesses with asset purchases greater than $2,500,000.
50% Bonus Depreciation Extended Through 2019
In addition to the increase in Section 179 deduction they also extended the 50% bonus depreciation through 2019. Businesses of all kinds will be able to depreciation 50% of qualified asset purchased placed into service during tax years 2015, 2016, and 2017. For the 2018 tax year bonus depreciation limit will be reduced to 40% and further reduced to 30% for 2019.
This means that in ADDITION to the Section 179 deduction of $500,000, any business with qualified purchases can also deduct an additional 50% of the purchase price up to the maximum of $2,000,000 of purchases.
Why this is Great News for Small Businesses
One of the most profitable decisions you can make for your business in 2016 would be to utilize the Section 179 deduction for asset or software purchases through an equipment lease or equipment finance agreement (EFA). Why? It’s simple, lets look at a quick hypothetical example;
- You purchase equipment for your business worth $400,000 in 2016
- You enter into an equipment lease or EFA agreement for 60 months starting 10/1/16
- The estimated total payments on your lease (cash outlay) would be $22,649 at 4.99% interest
- Through Section 179 you would be able to deduct the entire purchase price even though you have not paid for it
- Total deduction on 2016 tax return = $400,000
- Tax savings on estimated 35% tax bracket ($400,000 x 35%) = $140,000
- Total tax savings minus total cash outlay = $140,000 – $22,649 = $117,351 in extra cash this year!!
- By utilizing the Section 179 deduction with a non-tax capital lease you could put an extra $117,351 in your bank!
Advantages of Leasing and Financing for Section 179
It’s pretty simple, as shown in the previous example you can actually deduct the entire amount of equipment or software you purchased on your business tax return this year when your actual payments are far less. Meaning you can utilize Section 179 and leasing to put cash in your pocket today.
What Types of Leases Can I Use to take Advantage of Section 179?
“$1 Buyout Lease” and a “10% Purchase Upon Termination Lease (PUT)” both qualify as financial solutions to tax advantage of the Section 179 tax deduction for your small business. In addition, you can also utilize an Equipment Finance Agreement (EFA) in order to take advantage of this tax savings.
What Types of Equipment or Software Qualify for Section 179?
- Equipment for business use;
- Tangible personal property used in business;
- Business Vehicles with gross vehicle weight in excess of 6,000 lbs;
- Computers & computer software (off the shelf);
- Furniture and office equipment;
- Large manufacturing tools and equipment;
- High-Technology Equipment such as medical devices;
- Property attached to your building that is not a structural component of the building.
One of the most profitable decisions you can make to influence your bottom line this year is to utilize the Section 179 deduction in conjunction with an equipment lease or equipment finance agreement. The vast majority of assets purchased for business use do qualify for this tax savings and in many cases you can actually save more money this year than you actually pay for the purchase of the equipment.
* FinanceApp is not an authorized tax advisor and not giving Tax advice. Correctness of Information provided is not guaranteed. You must consult your tax advisor, visit www.irs.gov or contact the IRS helpline at 800.829.4933 to confirm if you qualify for this tax benefit.