Let’s start by saying that Section 179 is complicated, especially since the Tax Cuts and Jobs Act (TCJA) took effect. Each business is unique in what they can deduct. Since tax law seems to be frequently changing, it’s best to have a tax professional navigating business deductions for you.
Internal Revenue Code S179 is all about depreciation deductions and can be very valuable to small business owners if they’re claimed correctly. It allows the taxpayer to deduct certain asset purchases in the year purchased rather than over its lifetime. Meaning Section 179 is an absolutely essential deduction for you to take advantage of.
Section 179 is written to help taxpayers deduct “the cost of certain property as an expense when the property is placed in service,” according to the IRS. The Tax Cuts and Jobs Act (TCJA) raised the maximum deduction limit from $500,000 to $1 million while increasing the threshold. The maximums will be indexed for inflation after 2018.
Businesses immediately claim the depreciation from purchases and certain improvements in the first tax year. So if your company purchased a $50,000 machine, you could deduct the entire purchase during the current tax year. This is usually preferable rather than spreading the depreciation deduction over its lifetime.
Depreciation Deduction Assets
Section 179 tax deductions can be applied to “tangible personal property such as machinery and equipment purchased for use in a trade or business, and if the taxpayer elects, qualified real property.” This includes computer software, business vehicles, and other business equipment. The purchase doesn’t necessarily need to be brand new. Used equipment, as long as it is for business use, is considered qualifying property.
The IRS also considers certain improvements to qualified real property, as eligible for the deduction which includes the roof, HVAC, security systems, or safety improvements.
Once you’re ready to do the year’s taxes for your business, you should compile all the year’s asset purchases that have been placed in service. You’ll report the full purchase price of the asset so be sure to keep receipts. Any costs associated with purchase is your basis. To finish preparing your annual tax return, you’ll complete IRS Form 4562.
C&D | Section 179
If you have a business that made some significant purchases over the year, you may want someone to help you with your taxes. C&D can help. By taking an active role in your finances, we actively advise your business goals. Our CPAs will do more than just help you fill out tax forms.
Schedule a consultation to see how we can start planning your finances and we’ll discover the right tax breaks together.