Because we are not tax experts (and don’t want to be!), we go to someone who understands how we can use tax laws to operate our business more effectively. We thought this information is timely and helpful in our line of work. This material comes to you from Thelma Hunt with Humphres and Associates, PC, and our BlueCore accounting firm.
The IRS Section 179 deduction is accelerated depreciation expense for businesses, allowing businesses to deduct the full purchase price of qualifying equipment purchased in the tax year. For the 2016 tax year, there is a maximum of $500,000 that can be deducted for business equipment (new or used) in the year of purchase. For instance, if you purchase a piece of office equipment such as a computer server that cost $5,000 in 2016, on the 2016 tax return the business can deduct the full $5,000 cost rather than depreciating over the life of the asset.
There are limits, such as total amount of equipment purchased in the 2016 year of $2,000,000, with the deduction being phased out after the $2,000,000 expenditure, but it is a great incentive for small businesses.
Section 179 cannot be used to create a tax loss on the business, but any unused Section 179 deduction can be carried over.
Also part of the accelerated depreciation laws in recent years is IRS Section 168, which allows a business to write off up to 50 percent of the cost of the equipment in the year of purchase. The equipment must be new, and not used, for Section 168 to apply.
Tax planning may be helpful in determining which depreciation methods are most beneficial for this tax year for your business. If our office can assist you with your planning or accounting needs, feel free to contact us for a free consultation.
If you’ve already purchased equipment this year, be sure to talk with your accountant to optimize your tax savings. If you are considering new equipment or know that you need to upgrade your technology in the short term, check in with your account manager to discuss what makes sense for you.