Successful businesses often take advantage of legal tax incentives to help lower their operating costs. The Section 179 Deduction is a tax incentive that is easy to use and gives businesses an incentive to invest in themselves by adding capital equipment. In short, taking advantage of the Section 179 Deduction will help your business add equipment and software, while allowing you to keep more of your tax dollars.
If your organization is considering purchases or upgrading your technical infrastructure, or is looking to purchase software, taking the Section 179 deduction could mean significant savings this year. It is, however, worth repeating that the equipment must be purchased (or financed) received, and installed by MIDNIGHT ON DECEMBER 31st. The deduction limit has also increased to $1.08 Million in 2022.
We’ve pulled a few key pieces of information directly from Section179.org to give you an overview of the benefits of utilizing Section 179. As always, your Keller Schroeder Account Manager is ready to help you learn how we can help ensure your purchases are ordered and put into service by the December 31st deadline.
What is the Section 179 Deduction?
Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves.
What types of equipment qualify?
Section 179 was designed with businesses in mind. Most tangible business equipment, including new and used equipment and off-the-shelf software qualifies, regardless of whether it was purchased outright, leased, or financed. Please keep in mind that to qualify for the Section 179 Deduction, the equipment listed below must be purchased and put into use between January 1st and December 31st of the tax year you are claiming. A few examples are listed below, or you can click here for a list of qualifying property.
How much can I save on my taxes this year?
It depends on how much qualifying equipment and software you purchase and put into use this year. Section179.org has a fully updated Section 179 Calculator that can show you your expected tax savings in 2022. We’ve also included a sample calculation below.
|Cost of Equipment||$1,150,000|
|First Year Write Off|
($1,080,000 maximum in 2022)
|100% Bonus First Year Depreciation|
(updated to 100% via ‘Tax Cuts and Jobs Act’)
|Normal First Year Depreciation|
(20% in year of 5 years on remaining account)
|Total First Year Deduction|
($1,050,000 + 100,000 + 0)
($1,150,000 x 35% tax rate)
|Equipment Cost after Tax|
(assuming a 35% tax bracket)
Can I lease or finance equipment and still quality for Section 179?
Using Section 179 with an Equipment Financing Agreement could be an incredibly profitable decision for your company this year. Why? Because the taxes you save with the deduction could exceed your cash outlay for the year when you combine (i) a properly structured Equipment Finance Agreement with (ii) your Section 179 deduction. Visit the Section 179 Qualified Financing page to learn more.
How do I elect to take the Section 179 Deduction?
There are multiple options for taking the Section 179 Deduction. Information on specific IRS forms can be found on their Electing the Deduction page. Please note – You must keep complete records of the business equipment you leased or purchased during the year, including where you acquired the equipment from and the date the equipment was acquired and placed into service. If filing for any particular year, the equipment must have been leased or purchased and placed into service between January 1 and December 31 of the year you are filing for.
We’re here to help! Please contact us at any time to learn more about Section 179 and how Keller Schroeder can help you receive your equipment in time to qualify.