06 Oct Section 179 Tax Deduction
At Brightlink we pride ourselves on being as helpful as we can to our partners to help their businesses be as successful as possible. We are beyond grateful to be able to supply you with excellent communication products and tips to improve your business. We also like to pass along helpful facts that could help you save money. Just like the name of this blog, we want to make sure you have the latest information on the Section 179 tax deduction for businesses!
Updated for 2021.
How the Section 179 Tax Deduction Works
If you have purchased (or financed) select new or used equipment, vehicles, and software within the tax year, you can deduct the price using the IRS tax code Section 179. As a smaller business, this can be particularly beneficial as those purchases quickly add up. There are limits as to what is deductible, however:
- Deduction limit for 2021: $1,050,000
- Equipment Spending Cap for 2021: $2.62 million
- Deduction limit for 2021: $1,050,000
Essentially what this means for your business is that any equipment or software that is purchased between January 1st and December 31st and put into service can benefit from the Section 179 deduction. With this regulation, your company can spend up to $2,620,000 on equipment before the deduction is reduced on a dollar-for-dollar basis. Once purchases exceed $3,670,000, the deduction is removed entirely. This makes the Section 179 deduction perfect for SMBs. As larger enterprises are far more likely to reach the cap spending limit for the deduction.
Section 179 Helps Small Businesses
To help their companies thrive, owners of small businesses may also claim first-year bonus depreciation on some personal property that is also used for business purposes. With this, you can deduct a percentage of the allowed costs of assets only in the first year of purchasing. However, you may deduct the remaining costs over several years with regular depreciation and Section 179 expense. Utilizing bonus depreciation is optional, so you can choose not to use this option. But if you’d like the largest deductions possible, it’s best to use said option when available. Additionally, the bonus depreciation has no spending limit, so there’s no max that you can claim with Section 179. You are free to deduct any amount larger than your year’s income.
There are more limits to Section 179 as of 2020, because it has become infamous for previously allowing businesses to purchase SUVs. Then deduct the entire cost of said vehicle. Now, allowed vehicles must weigh more than 6,000 pounds and the maximum deduction allowed for said vehicles is $25,000. However, you can potentially be qualified to use the above-mentioned bonus depreciation on the remaining vehicle cost. It’s important to note that you cannot use the mileage deduction when you are using the vehicle deduction, as it is already worked into the vehicle deduction. The mileage deduction is set at 57.5 cents per mile for the 2020 tax year.
To qualify for the Section 179 deduction, you must list the property you currently use for business purposes and must occupy that property for over 50% of your workweek. This can include automobiles or other personal property. As of 2018, computers are no longer classified as listed property. To figure out how much is deductible, you multiply the cost of said items by the percent of business use. This will land you with the amount that is Section 179 deductible. The Section 179 deduction also allows for leased equipment and software, as most businesses prefer this method. This helps manage profits and your company’s cash flow.
To see how much you could save with Section 179, check out the Section 179 calculator.
The regulations for Section 179 change regularly, just like most tax-related rules, so act now while you can! As with most solutions, your business is not the same as others. So, we recommend you talk with a tax professional to see what tax solutions may be right for you.
The Information provided above is for illustrative purposes only. Brightlink and all affiliated with the company are not tax professionals. This blog is not intended as tax advice. Please talk with a tax professional concerning your business and Section 179 deductions.