Small business owners understand that it’s not enough to make a profit; you have to also implement strategies to keep more of those profits in your pocket, and less in Uncle Sam’s pocket. One of the key tools available to small business owners to reduce their taxable income is to take the Section 179 deduction on equipment purchases. Section 179 of the IRS Tax Code allows a business to deduct the full purchase price of qualifying equipment and/or software 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.
Business owners – if you have had a profitable year, and you’d like to lower your taxable income while investing in your business, purchasing technology solutions before the end of 2018 can delivery big tax relief. Of course, we recommend that you consult with your CPA, accountant, CFO, or other tax professional.
Here’s How Section 179 works:
In years past, when your business bought qualifying equipment, it typically wrote it off a little at a time through depreciation. In other words, if your company spends $50,000 on a machine, it gets to write off (say) $10,000 a year for five years (these numbers are only meant to give you an example). 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. And that’s exactly what Section 179 does – it allows your business to write off the entire purchase price of qualifying equipment for the current tax year. This has made a big difference for many companies (and the economy in general.) Businesses have used Section 179 to purchase needed equipment right now, instead of waiting. For most small businesses, the entire cost of qualifying equipment can be written-off on the 2018 tax return (up to $1,000,000).
Who Qualifies for Section 179?
All businesses that purchase, finance, and/or lease new or used business equipment during tax year 2018 should qualify for the Section 179 Deduction (assuming they spend less than $3,500,000). Most tangible goods used by American businesses, including “off-the-shelf” software and business-use vehicles (restrictions apply) qualify for the Section 179 Deduction. For basic guidelines on what property is covered under the Section 179 tax code, please refer to this list of qualifying equipment. Also, to qualify for the Section 179 Deduction, the equipment and/or software purchased or financed must be placed into service between January 1, 2018 and December 31, 2018.
Examples of Technology Purchases that Qualify for Section 179
Here are some great technology purchase ideas that quality for Section 179.
- Upgrade or replace VOIP Phone System
- PC Refresh
- Upgrade Server and Network Infrastructure
- New High Performance WiFi Systems
Reach out to your Fulcrum Group Account Manager or Fractional CIO for advice and suggestions on end of year technology projects that might make sense for your organization.