January 1, 2013 the American Taxpayer Relief Act of 2012 was passed and the government extended several key benefits to the small business owner. The bill not only extended the Section 179 deduction, it increased the deduction to $500,000 for the current year and they raised the level to $500,000 retroactively for 2012. This allows business owners to deduct or expense the purchase price of equipment, machinery, software and vehicles this year, as opposed to their normal depreciation schedule. This allows business owners to purchase the equipment and software that they need today and save THOUSANDS.
Example #1 (over 500k)
- Equipment Purchases: $650,000.00
- First Year Write-Off: $500,000.00
- 50% Bonus Deprecation (over $500,000): $75,000.00
- $650,000-$500,000= $150k x 50%
- Normal First Year Depreciation: $15,000.00
- 20% in each of 5 years on remaining amount
- Total First-Year Deduction: $590,000.00
- $500,000 + $75,000 + $15,000
- Tax Savings: $212,400.00
- $590,000 x assumed tax rate of 36%
- Equipment Cost After Deductions: $437,600.00
Example #2 (under 500k)
- Equipment Purchases: $150,000.00
- First Year Write-Off: $150,000.00
- Total First-Year Deduction: $150,000.00
- Tax Savings: $54,000.00
- $150,000 x assumed tax rate of 36%
- Equipment Cost After Deductions:$96,000.00
What Qualifies for Section 179?
- Equipment (machines, etc) purchased for business use
- Tangible personal property used in business
- Business Vehicles with a gross vehicle weight in excess of 6,000 lbs (Section 179 Vehicle Deductions)
- Computer “Off-the-Shelf” Software
- Office Furniture
- Office Equipment
- Property attached to your building that is not a structural component of the building (i.e.: a printing press, large manufacturing tools and equipment)
- Partial Business Use (equipment that is purchased for business use and personal use: generally, your deduction will be based on the percentage of time you use the equipment for business purposes).
Section 179 can change each year without notice (Section 179 has even changed mid-year), so it benefits you to take advantage of this generous tax code while it’s available. Section 179 offers small businesses a great opportunity to maximize purchasing power. In addition, the recent Stimulus Acts have provided the small business owner with generous new (and higher) deduction limits. Most of the equipment your business will purchase, finance or lease qualifies for the deduction so make sure you do your homework to verify that your company is leveraging the Section 179 Deduction this year!