Section 179 Expensing Explained
The cost of operating a business can quickly add up. No matter what kind of business you are running, you likely want to save money any way you can. Getting tax deductions is one way to save, and section 179 expensing can help you save even more.
What is Section 179?
Section 179 is a depreciation deduction that is specifically beneficial for small or medium business owners. Business owners can deduct property or equipment purchases on their income taxes as an expense instead of requiring the costs to be capitalized. However, only certain types of property apply. With section 179 expensing, you cannot deduct purchases of land, estates, air conditioning, heating units, and more. You can deduct assets such as machinery, office furniture, computers, software, business equipment, and business vehicles weighing over 6,000 pounds. The IRS has a helpful list describing what property expenses can and cannot be deducted under section 179.
How does it work?
In the past, there was a small $10,000 cap on section 179 deductions. This limit was altered several times, even dropping from $500,000 to $25,000 in the beginning of 2015. The PATH Act was passed by Congress in December 2015, raising the limit of deductions back to $500,000 and making this change permanent, with the exception of changes due to inflation. This change made it easier for small business owners to keep track of section 179 expensing.
With section 179, small and medium business owners can deduct particular business equipment purchases in the tax year when the purchases were made, whereas in the past, business owners may have had to deduct these expenses over several years. As a business owner, you can receive all the tax benefits for purchases made without having to wait or spread out deductions.
What do I need to know?
There are a few important things to know to help avoid frustration or misunderstandings in regards to section 179 deductions. This deduction can only be used for property or equipment dedicated primarily for your business at least half of the time. If your property is used for personal purposes, the deduction may be reduced. Section 179 is not intended for rented or leased equipment or property that your business has inherited or been gifted. It is only for new or used property your business purchases.
In addition, it’s important to know that companies that spend more than $2 million per year on equipment purchases do not qualify for section 179 deductions. The deduction limit and business expense limit will adjust according to inflation.
If you are a small or medium business owner, Section 179 expensing can be beneficial during when it’s time to file your taxes. Learn more and consider these deductions as you purchase business equipment throughout the year.