All types of businesses need some sort of equipment to sustain day-to-day operations, facilitate growth, expand opportunities, and increase competence. Whether it be computers, office furniture, machinery, vehicles or other tangible items, purchasing equipment affect your bottom line. The good news is that there are tax benefits you may qualify for when purchasing equipment.
Almost every business has equipment that depreciates with time and instead of being required to gradually deduct value throughout several years, Section 179 of United States Internal Revenue Code permits firms to acquire the entire depreciation deduction, otherwise known as first-year expensing.
For example, if you were to buy a new desktop computer for each employee, you have to deduct a portion of each unit’s cost over multiple years, as per depreciation rules. Section 179 allows for the immediate deduction of the entire expense in a single year instead of being required to monitor depreciation for a computer that doesn’t usually remain useful for decades.
To provide a clearer picture of the scenario, this section doesn’t increase the total amount you can deduct in a single year but only allows you to benefit from the deduction all at once.
However, Section 179 can only be used on tangible business equipment such as machines purchased for business use, tangible personal property used in business, business vehicles with a gross vehicle weight in excess of 6,000 lbs, computers, computer software, office furniture, office equipment, property attached to your building (doesn’t include structural components), and things bought for both business and personal use.
Although not all equipment purchases are eligible for Section 179, you can still receive tax savings for any equipment through depreciation deductions. Equipment which does not qualify for Section 179 deduction is acquired through an equipment lease. Acquiring a new piece of equipment to enjoy the tax benefit of purchasing equipment will not help you save money. However, understanding the implications of your purchase will help you lessen your tax burden and maximize your cash position.
Disclaimer: Consult your tax professional to confirm that your purchase would meet the Section 179 deduction requirements, and for updates on the 2015 limit on Section 179 deductions. It’s an area of tax code this is ever-changing