Small businesses are important for the economy of the country and they provide healthy competition within an industry. However, running a small business has many challenges, one of which is financial. It’s expensive to successfully run a business, and part of that expense is the purchasing of necessary equipment and property. In an effort to encourage small businesses to invest in themselves, the section 179 deduction was created, and then expanded by the Tax Cuts and Jobs Act of 2017 (TCJA).  So what is this deduction and how can your business benefit from it?

What is the Section 179 Deduction?

The section 179 deduction is a part of the tax code that allows businesses to deduct the full purchase price of equipment off their gross income when they file taxes. In the past, businesses would only be allowed to write off such purchases a little bit at a time per year based on depreciation and prolonging the ability to benefit from the deduction. Since this deduction was put into place, businesses can now benefit from writing off their business purchases that same year, allowing them to earn this tax benefit right away. This deduction leads to significant savings and is a financial help to growing businesses who could use the assistance right away, not spread out over several years. 

What Are the Parameters of the Section 179 Deduction?

In order to use this tax benefit, the equipment purchased must be put into use during that year and must be used more than 50% of the time for business reasons. There is also a limit of $1,000,000 that can be written off and a spending cap of $2,5000,000.

What Kind of Purchases Qualify for a Section 179 Deduction?

Most tangible business purchases, including software, certain vehicles, computers, and other necessary equipment will be eligible for a deduction under section 179. Recently, improvements to a business’ building are also included, as long as the improvements were made after the building was put into use. Improvements include adding elevators and escalators, construction to make the building bigger, reconfiguring the interior of the building, adding security and fire alarms, and roofing work. Intangible purchases like permits and patents are not included.

The Limit of Income

Unfortunately, you are limited in your deductions by how much money your business makes that year. You can’t deduct more than you earn, so if your business earned $100,000 and you spent $150,000 on business purchases, you only get to deduct $100,000 of that amount. Luckily, you will still have the opportunity to deduct that $50,000 the following year if you make enough money.

If you run a small business, an experienced accountant can help you tax advantage any benefits, such as the section 179 deduction, that can help your company as it grows. At DeSantis, Kiefer, Shall, & Sarcone, we will work with you to help your business make financial decisions required to become a success.