Will Section 179 might give your business an even bigger tax break than ever before?
What I’ve learned: Section 179 can save your business (and mine) a lot of money. It lets you deduct full purchase price of qualifying equipment—computers and software—that were purchased during the tax year.
What this means for your business? If you buy qualified equipment and software, you’re able to deduct THE FULL PURCHASE PRICE from your gross income.
Why does the government do this? To encourage economic growth in American business, by getting companies to invest in their businesses.
The bottom line: It’s important that you understand and know about what this specific code can do for your business to avoid missing out on major deductions.
First, what the heck is the Section 179 Deduction?
Section 179 of the IRS tax code lets businesses deduct full purchase price of qualifying equipment—which includes computers and software— purchased during the tax year. What this means is when your business buys qualified equipment or software, they can deduct the FULL PURCHASE PRICE from your gross income. The logic behind why Section 179 exists? To encourage businesses to buy equipment and invest in their businesses.
Who Qualifies for 179?
You have to meet the following 2 criterion to qualify:
- If your business purchased, financed or leased less than $500,000 in new or used business equipment in 2016 you should qualify for the deduction. The purchased equipment must be used for business purposes at least 50% of the time to qualify.
To understand the amount a specific piece of equipment qualifies for the deduction, you can simply multiply the percentage used for business purposes by the cost of the equipment! You’re your accountant will know the nitty gritty about the specifics to Section 179- I encourage you to reach out to them to see if you are making the most of your deductions! Computers and Software used in your business DO qualify (land and buildings DO NOT qualify here).
- Your equipment MUST be purchased and put into use within the tax year you are taking the deduction. That means you need to have the equipment or software in your possession before 2016 ends to be eligible.
Changes to 179 in 2016:
Your Deduction Limit Increased to $500,000—Deduction on new and used equipment (any computer hardware) and software has increased this year to $500,000!
Your 2016 Spending Cap on Purchases Increased to $2 MILLION— Congress increased the limit you can spend on equipment before the Section 179 deduction begins to reduce (on a dollar for dollar basis) to $2,000,000.
Bonus Depreciation for 2016 is 50% has been extended to 2019—After you’ve reached the spending cap of $2 million, you can take a 50% depreciation for 2016 off of new equipment purchased.
How Section 179 Works?
When your business purchases certain equipment and software, you are able to write off purchases little by little over time because it depreciates in value. For instance, if you purchase a server for $100,000, you get to write off (lets’ say) $25,000 for four years. Note: these numbers are just my dummy example. Your accountant will know the specifics!
But wouldn’t you rather just write off the entire purchase up front? That’s why Section 179 was originally written—to motivate spending in the American economy. For most businesses, the entire cost of equipment and software can be written off for the 2016 tax return.
Computer equipment and software are included in the Section 179 Deduction!
Any computer needs- laptops, desktops, servers, routers, out-of-the box and custom-built software are eligible for the Section 179 deduction! I want to make sure you are taking action and getting your maximum benefit! But to reap the benefits of Section 179 for this fiscal year, you need to act quickly.
The deadline for purchases to be claimed for 2016 is quickly approaching! Contact me today to come up with a game plan for any imminent computer spending you had been considering and let’s figure out a strategy for you to get the most out of your deductions!
