(Newswire.net — March 11, 2016) — As the tax deadline approaches, many businesses are scrambling to make the right choices as it pertains to claiming credits and deductions. And while your accountant will likely catch most of the savings, make sure everyone is aware of Section 179 of the IRS tax code, which has been extended for tax year 2015.
What is Section 179?
Section 179 of the IRS tax code essentially allows small businesses to write off the entire expense of certain equipment and software that is purchased within a specific tax year. The write off comes in the form of a deduction from your gross income.
While this may not sound like a groundbreaking opportunity – since equipment can always be deducted – the key is that businesses can deduct the entire amount in a single tax year.
“Usually, when your business buys a piece of equipment, you can only write off a portion of the cost of that equipment each year for a certain number of years,” points out Kenney Machinery, whose customers frequently leverage Section 179 when purchasing turf equipment from them. “However, in an effort to encourage businesses to buy more equipment and thus stimulate the economy, the government is allowing small and medium sized businesses to write off the entire cost of certain types of equipment.”
Rules and Restrictions
As with any tax code, there are certain rules and restrictions in play. For tax year 2015, the most you can deduct is $500,000. And any business that has purchased or leased less than $2 million of new or used equipment can qualify.
There’s also the matter of qualifying equipment. According to Section179.org, qualifying property includes machines, business vehicles with a gross vehicle weight of more than 6,000 pounds, computers, office furniture, office equipment, property attached to a building, and other similar items.
The key is to act swiftly, Section 179 can change from year to year – and has even been known to change mid-year. In other words, it’s beneficial to take advantage of this deduction as soon as possible. The longer you wait, the more you risk losing out on this flexibility.
“Experts believe that, eventually, the bonus depreciation may be done away with,” says one industry insider, “but until then it will continue to energize those who are trying to revitalize their brands, start a new chapter in their lives, and enter into an extremely high-risk market without gambling everything they have away.”
Big Savings are Waiting for You
While the thought of another tax deduction may not sound “sexy” to you, think about it in terms of savings. In this infographic, they lay out a sample Section 179 tax deduction scenario to show small business owners just how important it is to claim this benefit.
In the example, the equipment cost is $750,000, the Section 179 deduction is $500,000, the bonus depreciation is $125,000, and the first year deduction is $650,000. As a result, the cash savings in the 35 percent tax bracket would come to $227,500. This brings the cost of the equipment after tax savings all the way down to $522, 500 – or a whopping 30 percent off.
Maximize Your Tax Savings
As a small business owner, there’s a lot to think about during tax season. And while it’s fine to leave out certain minor deductions, Section 179 is not a deduction you want to forget about. If you’re eligible for this tax break, you could potentially save hundreds of thousands of dollars.
Before finalizing your taxes, make sure you and your accountant have discussed this option and maximized your tax savings. It can significantly lower your tax burden and provide the extra boost your company needs to thrive in 2016.