It’s that special time of the year!! The Holidays!! The season of giving…but also the season of watching our dollars fly out of our pockets. It is such a wonderful thing to give, but such a struggle to try and save as much as possible, especially when it comes to this time of the year. But allow us, at KRS IT, to give you a wonderful bit of information that will not cost you anything. In fact, reading on and taking advantage of this simple tax write-off may even bring, and save you money for the year, and in the near future.
What is Section 179??
Some of you business owners may have heard of this tax section. If not, here’s some informative basic points to consider. Section 179 of the IRS tax code allows businesses to deduct the total purchase price of qualifying equipment and software purchased or financed during the tax year. This gives small businesses an immediate advantage over larger competitors who may not have the same access to capital. Section 179 also encourages small business owners to invest in technology, which will help their businesses grow over time.
To qualify for Section 179 treatment, equipment must be purchased between January 1 and December 31 of the tax year; used for business purposes (not for personal use); owned by you or someone who does not provide substantial services under your direction (it does not have to be bought from a company that offers those services if it is deemed eligible for Section 179); in service before January 1, 2020; and not leased.
What should you look to purchase for your business??
This all really depends upon your business.
- Are you constantly communicating or handling your business through your desktops/laptops? Then we would highly recommend investing in the proper software needed to complete your daily tasks. And it wouldn’t stop there. Laptops, desktops, monitors, tablets, computer equipment/accessories, modems, routers, etc. are just a few items that would be qualified as purchases in this scenario.
- Do you have clientele visiting your office from time to time? Well, you can also consider office furniture to qualify as purchases for your business. This would include, but not limited to: desks, chairs, file cabinets, copiers, and printers.
- Perhaps you and your employees are not always based out of the office. At KRS, we have staff that are frequently on the road, to be sure our equipment is running accordingly for our clients. Since we need to tend to a few of our clients on the field, we invested in KRS vehicles, which are very reliable and are truly thankful for. Yes, company vehicles can also be added to the list for Section 179! These are just a few main items when considering what would be eligible for Section 179.
A business, sole proprietorship, LLC, or partnership must make purchases.
The equipment must be purchased by a business, sole proprietorship, LLC (limited liability company), or partnership. The business must also have been in existence for at least one year and have gross receipts of $500,000 or less. The equipment purchased cannot be tax-exempt under Section 501(c)(3) of the Internal Revenue Code. In addition to these qualifications, businesses will not qualify if they are:
- Governmental entities.
- Charities that are exempt from taxation under Section 501(c)(3) of the Internal Revenue Code.
- Educational organizations within the meaning of Section 170(b)(1)(A)(ii) of the IRC.
Businesses eligible for Section 179 are those with an active C corporation, S corporation, business trust, partnership (*LLC included), or sole proprietorship that has income from conducting a trade or business in the current year.
To be eligible for Section 179, your company must be a business (this includes a C corporation, S corporation, business trust, partnership (*LLC incorporated), or sole proprietorship) with income from conducting a trade or business in the current year.
Equipment purchased for personal use does not qualify for Section 179 deduction.
Granted, we all wish we can deduct EVERYTHING we can find, but if you buy and install a new water heater for your home, it does not qualify for Section 179 deduction. However, if you purchase and install a new water heater for your business (for example, if you're an HVAC contractor), it would be eligible.
Qualifying equipment must be purchased and put into service between January 1 and December 31 of the current year. The equipment must also be used primarily in the United States by either of these entities: The person who owns it or leases it from someone else (this person is called the "lessee") -any other person who has an interest in that property because they are leasing or renting part of their building or equipment to someone else.
By utilizing this write-off, these small businesses can invest the money they saved through the tax write-off to facilitate growth in other areas.
What types of equipment or software qualify for Section 179 of the IRS tax code?
- An asset that costs $2,500 or less may be eligible for a full deduction. This includes any computer hardware or software, as well as machinery and office furniture.
- The maximum deduction under Section 179 is $1 million per year (or $2 million if you are eligible for an extension). If your company has more than one location and wants to purchase some assets at each location, they must still be combined when calculating your total annual cost limit.
- In addition to being able to deduct up to 100% off their purchase price in one year instead of depreciating it over several years as most other businesses do, qualifying companies can also get a special bonus depreciation allowance that allows them to write off up to 10% extra on top of this deduction in certain circumstances (e.g., purchasing new equipment).
This means that by utilizing this write-off, these small businesses can invest the money they saved through the tax write-off into other areas within their business, such as hiring more employees or buying new equipment which would otherwise have been out of reach due to budget constraints imposed by traditional accounting methods such as depreciation schedules and amortization periods under GAAP rules set forth by the Financial Accounting Standards Board (FASB).
Final thought
The IRS Section 179 tax deduction is one of the most valuable benefits for small businesses. It allows you to deduct the total purchase price of qualifying equipment and software purchased or financed during the tax year.
In other words, if your business purchases $100,000 worth of equipment and software in 2022, Section 179 allows you to deduct that amount from your taxable income before calculating how much money you need to pay back in taxes each year.
At KRS, we are cybersecurity experts. However, we're not accountants or tax specialists. That's why we recommend you consult your accountant or tax specialist to determine if Section 179 is right for you. It can save you hundreds of dollars in taxes and help you stay on track with the proper IT security needed for your business.