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How to Take Advantage Of The IRS 179 Deduction Before It Expires
On January 2, 2018, H.R.1 was signed into law. It revised several previous tax laws going forward. With the passage and signing of H.R.1, the deduction limit for Section 179 increased to $1,000,000 for 2018 and beyond. In addition, the limit on equipment purchases was increased to $2.5 million.
What Is Section 179?
Now more than ever before, small businesses should take advantage of new deductions in Section 179 of IRS tax law. This depreciation deduction applies to certain assets purchased in one year. These can be depreciated over a longer period of time.
The IRS 179 Deduction was enacted to help small businesses lessen their taxable income, thereby reducing their tax burden. Business owners can now take a deduction equal to the full purchase price of a qualifying piece of equipment.
Deadlines This Year
You must buy (or lease/finance) equipment, and put it into use, by midnight 12/31/2018 to take advantage of Section 179 this year. These types of business deductions always expire at midnight on the last day of the year.
Is There A Bonus Depreciation?
A bonus depreciation of 100% was made retroactive to 9/27/2017. This depreciation is good through 2022 and it now includes used equipment.
The Tax Cuts and Jobs Act (TCJA) extends the Bonus Depreciation through 2026 (2027 for certain assets). There were other changes made to write off the types of assets that qualify for Bonus Depreciation, as well as the percentages.
The 100% deduction remains in place for five years until 2022. In 2023, the depreciation percentage will be reduced by 20% each year until it finally runs out in 2026. The reductions will look something like this:
- 80% deduction for assets acquired in 2023.
- 60% for assets acquired in 2024.
- 40% for assets acquired in 2025.
- 20% for assets acquired in 2026.
- For 2027 and beyond, deductions are eliminated unless changes are made to the tax code by the IRS.
Will You Still Qualify If Leasing or Financing Equipment?
Business equipment (including hardware and software) still qualify for Section 179 deductions even if it’s leased or financed. The equipment must be placed in service for business purposes in order to qualify.
If you purchase equipment under a Capital Lease, cash sale or a dollar buyout, it will qualify for the deduction. You must be the owner of the equipment and maintain full control of it.
Some Examples of Technology Equipment That Are Eligible
The following is a list of the typical types of technology that may qualify:
- Switches (Take advantage of the newer, faster switches that are available today.)
- Routers and Firewalls (These should be replaced every 2-3 years for security purposes.)
- Off-the-Shelf Software (software that’s not customized for your business)
- Wireless Access Points
- Phone Systems (VoIP or traditional)
- Servers (These should be replaced every five years.)
- Backup & Disaster Recovery Appliances (Do you have a reliable system that will support your business if you suffer from a natural or manmade disaster?)
- Laptops and Ultrabooks (New technology is available with much longer battery life.)
- Workstations and Monitors (Add a 2nd monitor for your key staff to increase productivity.)
- Battery Backups (You need these when the power goes down.)
- Scanners (Today’s scanners are faster and allow you to scan multiple documents at once.)
- Storage SAN- Storage Area Networks, RAID-Redundant Array of Independent Disks, etc. (Digital picture files require lots of storage space.)
This is a significant deduction that you should take advantage of if you need to buy new equipment for your business. You can lessen the financial impact while improving productivity.
Be sure to check with your accountant about the specific details regarding your business or industry.