Are You Taking Advantage of Section 179?

US Customers – Are You Taking Advantage of Section 179?

A tax break called “Section 179″ that lets small businesses treat qualifying property purchases as expenses and deduct them from their taxable income.

Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It’s an incentive created by the U.S. Government to encourage businesses to buy equipment and invest in themselves.  “be sure to consult your tax adviser”

Tax Section 179

What is the Section 179 Deduction?

Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It’s an incentive created by the U.S. Government to encourage businesses to buy equipment and invest in themselves.

How Does Section 179 Work?

When your business buys certain pieces of equipment, it typically gets to write them off a little at a time through depreciation. In other words, if your company spends $50,000 on a equipment, it gets to write off at $10,000 a year for five years.

Now, while it’s true that this is better than no write off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it.

In fact, if a business could write off the entire amount, they might add more equipment this year instead of waiting. This is the purpose behind Section 179… to motivate the American economy (and your business) to move in a positive direction. For most small businesses adding total equipment, software etc totaling less than $500,000 in 2010, the entire cost can be written-off on the 2010 tax return.

Who Qualifies for Section 179?

All businesses that purchase or finance less than $2,000,000 in business equipment during tax year 2010 should qualify for the Section 179 Deduction.

Electing the Section 179 Deduction | Form 4562

If you are a small or medium-sized business owner who has purchased or leased equipment in 2010 and placed it into service during the calendar year, then you need to elect to take the Section 179 Deduction to ensure that your business captures the available tax savings.

Leasing and Section 179

Did you know that your company can lease equipment and still take full advantage of the Section 179 deduction? In fact, leasing equipment and/or software with the Section 179 deduction in mind is a preferred financial strategy for many businesses, as it can significantly help with not only cash flow, but with profits as well.

Non-Tax | Capital Lease

The main benefit of a non-tax capital lease is that you can still take full advantage of the Section 179 Deduction, yet make smaller payments.

With a non-tax capital lease you can acquire and write off up to $500,000 worth of equipment this year, without actually spending $500,000 this year. A small business that is managing cash flow can leverage a non-tax capital lease and still take the Section 179 Deduction.

Examples of non-tax capital leases include a ‘$1 Buyout Lease’ and a ’10% Purchase Upon Termination (PUT) Lease’. In many cases, the amount you save in taxes will be MORE than the total of your first year’s payments.

Equipment Financing

You may also obtain an equipment loan using an Equipment Finance Agreement (EFA) and still take the Section 179 Deduction.

Advantages of Leasing and Financing

The obvious advantage to leasing or financing equipment and then taking the Section 179 Deduction is the fact that you can deduct the full amount of the equipment, without paying the full amount this year. The amount you save in taxes can actually exceed the payments, making this a very bottom-line friendly deduction.

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Mike is a finance industry executive with expertise in test, IT and avionics equipment acquisition, resale, residual valuation, leasing, renting and consignment.
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