Section 179 Tax Deduction

Investing in your business can be a challenging uphill battle. Figuring out how to wisely spend money so you can make the most of your investments and turn a profit is often arduous, and if you try old-fashioned trial and error, you risk making mistakes that tank your business. It’s much more beneficial to gather information ahead of time so you can know how to optimize your spending strategies. For example, Section 179 of the tax code gives you additional tax deductions if you know how to use it. Here at Cliff Jones Mahindra, we’ve provided a breakdown of Section 179 so you can make the most of it when tax season rolls around. If you’re looking to invest in equipment, come talk to one of our experienced staff at our Sealy, Texas location, serving the great state of Texas.

What is Section 179?

And not just what is it, but why should you care? Consider this: if you’re buying a piece of equipment, you’ll get to write it off, but often it’s through the depreciation value. In other words, if you purchase a $50,000 machine, you might get to write it off of your taxes $10,000 at a time over the course of 5 years (this is just an example and does not reflect real deduction values).

Under Section 179, certain equipment can be deducted in full in the first year, meaning, if we’re using our example from earlier, you’d deduct the entire $50,000 from your taxes for the year you bought the machine. This is meant to incentivize business owners to buy more equipment over the course of a year, taking time to invest in their company, and stimulating the economy. And the size of your company doesn’t matter as both small and large businesses can use Section 179.

There are some limits to Section 179. You can’t deduct more than $510,000 (as of 2017) and can only be applied to total purchased equipment values under $2,030,000 (as of 2017). After this, the deduction begins to phase out, meaning this particular write off is perfect for smaller businesses. Keep in mind, those limits can change from year to year. There are other benefits, including Bonus Depreciation for values higher than the caps, that can change from year to year, so make sure you or your tax specialist stays up to date on the latest changes.

What Equipment or Vehicles Qualify?

Before we get into the specific equipment and vehicles that fall under Section 179, you’ll want to keep in mind that these machines will need to be used for business-related purposes more than 50% of the time, and you’ll only be able to tax the amount that is used for your business. Using our earlier example, if you use a $50,000 piece of equipment for your business only 80% (and the remaining 20% of the time you use it for other purposes), the taxable amount is $40,000 (reached by multiplying the total cost of the equipment by the percentage of business use). Also keep in mind that in order to qualify for Section 179, the equipment must be purchased and used between January 1 and December 31 of the tax year in question.

Taxable equipment, materials, and goods that qualify under Section 179 are as follows:

• Equipment, such as machines, purchased for business use
• Personal property used in business
• Business vehicles with a gross vehicle weight over 6,000 lbs
• Computers and Computer “Off-the-Shelf” Software
• Office Furniture and Office Equipment
• Property (printing press, large manufacturing tools and equipment, etc.) that is attached to your building but not part of it
• Equipment used for both business purposes and personal purposes (so long as they follow the earlier stated guidelines)

For many of our patrons, this includes agricultural equipment such as tractors and transport vehicles. Just make sure you have all the necessary documentation so you can accurately file your write-offs.

How can you take Advantage of Section 179?

The most important thing to remember is that Section 179 is not an automatic deduction, you must elect to take it. Talk to your tax specialist about electing for this deduction, or if you do not have a tax specialist and file your business taxes on your own, simply fill out Part 1 of IRS form 4562 and attach it to your tax return with all other attachments.

Keep in mind that Section 179 is used on an item by item basis and not the gross amount, so you can just as easily choose not to apply it to certain items. Finally, if you have qualifying items you did not elect to deduct in previous years (after 2007), you can elect to deduct them on a more current tax return.

When you’re trying to keep your business growing, you should take advantage of every benefit you can find, and Section 179 was designed specifically to help small businesses. It values investments in your own company, so make sure you’re using this opportunity to its fullest. If you’re looking for agricultural equipment to help build your own business, stop by Cliff Jones Mahindra in Sealy, Texas. We welcome all patrons from the great state of Texas.