For quite some time, business owners have had multiple methods to claim deductions on their yearly taxes. One of the most beneficial of these is known as Section 179.
In fact, Section 179 even made the news not long ago, with the benefits being made permanent as part of the signing of the Protecting Americans from Tax Hikes Act. This is a great benefit to small-business owners across the country, as they can now expand and invest in their own business.
While the new year is still young, you can, and should, take full advantage of Section 179 in 2016.
What is Section 179?
Section 179 is the government’s way of encouraging businesses to purchase new equipment while at the same time, invest in themselves.
This benefit, found in the IRS tax code, allows businesses to deduct the full purchase of qualifying equipment and software bought or financed throughout the current tax year. For example, you can deduct the full price of a new computer you purchased for your small-business. The deduction comes from your gross income.
While large businesses can take advantage of Section 179, it is more geared toward the millions of small businesses that purchase or finance equipment less than $2,000,000.
In previous years, Congress would have to renew this tax benefit on an annual basis. Unfortunately for small-business owners, politicians would often wait until the last possible moment to renew the benefit, causing immense stress in many accounting departments, as small businesses were unsure if they could claim any deductions.
This is no longer the case because, until further notice, Section 179 benefits are permanent.
How Does it Work?
The deduction limit is currently $500,000 on new and used equipment, while the spending cap is $2,000,000. This equipment must be purchased and put into service by the end of Dec. 31, 2016.
If you do decide to claim this benefit, you will have a relatively easy time completing the necessary paperwork. You’ll want to download IRS form 4562 and fill it out accordingly. The Section 179 benefit is taken on an item-by-item basis.
“The deduction limit is currently $500,000 on new and used equipment.”
Keep in mind you don’t always have to use the benefit on every piece of equipment you buy throughout the year.
What Equipment is Eligible?
A great aspect of Section 179 centers around the amount of equipment it can be used for. According to the IRS, purchased property must meet one of the following requirements:
- Tangible personal property
- Other tangible property used for important processes or related facilities
- Single purpose livestock or horticultural structures
- Storage facilities that are used with petroleum distribution
- Off-the-shelf computer software
- Qualified real property
The IRS also stated tangible personal property encompasses machinery and equipment, storage tanks and livestock, such as horses. Computer software must be available for purchase by the general public, not heavily modified and subject to a nonexclusive license.
You can even use Section 179 for vehicles, and you will need to fill out Form 2106 to find the various qualifications. Keep in mind certain limits exist on passenger cars and trucks to avoid potential abuse, although full deductions exist for vehicles with certain duties, such as an airport shuttle van.
Talk with your accountant or financial advisor to take full advantage of Section 179 tax benefits. The money you save can allow you to expand operations and invest in your employees, both of which will go a long way.
Plan for purchases accordingly, as you don’t want to wait until the end of 2016 to claim these benefits.