HUGE Tax Benefits for Purchasing Equipment or Software Now

IRS 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.

Several years ago, IRS Section 179 was often referred to as the “SUV Tax Loophole” or the “Hummer Deduction” because many businesses have used this tax code to write-off the purchase of qualifying vehicles at the time (like SUV’s and Hummers). But, that particular benefit of IRS Section 179 has been severely reduced in recent years, see ‘Vehicles & IRS Section 179 for current limits on business vehicles.

Today, IRS Section 179 is one of the few incentives included in any of the recent Stimulus Bills that actually helps small businesses. Although large businesses also benefit from IRS Section 179 or Bonus Depreciation, the original target of this legislation was much needed tax relief for small businesses – and millions of small businesses are actually taking action and getting real benefits.

IRS Section 179 does come with limits – there are caps to the total amount written off ($1,00,000 for 2019), and limits to the total amount of the equipment purchased ($2,500,000 in 2019). The deduction begins to phase out dollar-for-dollar after $2,500,000 is spent by a given business, so this makes it a true small and medium-sized business deduction.

All businesses that purchase, finance, and/or lease less than $2,500,000 in new or used business equipment during tax year 2019 should qualify for the IRS Section 179 Deduction.

Most tangible goods including “off-the-shelf” software and business-use vehicles (restrictions apply) qualify for the IRS Section 179 Deduction. For basic guidelines on what property is covered under the IRS Section 179 tax code, please contact one of our financing experts. Also, to qualify for the IRS Section 179 Deduction, the equipment and/or software purchased or financed must be placed into service between January 1, 2019 and December 31, 2019.

The deduction begins to phase out if more than $2,500,000 of equipment is purchased – in fact, the deduction decreases on a dollar for dollar scale after that, making IRS Section 179 a deduction specifically for small and medium-sized businesses.

Bonus depreciation is being offered in 2019 at 100%. The most important difference is both new and used equipment qualify for the IRS Section 179 Deduction (as long as the used equipment is “new to you”), while Bonus Depreciation covers new equipment only.

Bonus Depreciation is useful to very large businesses spending more than the IRS Section 179 Spending Cap (currently $2,500,000) on new capital equipment. Also, businesses with a net loss are still qualified to deduct some of the cost of new equipment and carry-forward the loss.

When applying these provisions, IRS Section 179 is generally taken first, followed by Bonus Depreciation – unless the business had no taxable profit, because the unprofitable business is allowed to carry the loss forward to future years.

The equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the IRS Section 179 Deduction. Simply multiply the cost of the equipment, vehicles, and/or software by the percentage of business-use to arrive at the monetary amount eligible for IRS Section 179.