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The Section 179 Tax Deduction Explained

Businesses are always trying to find new ways to reduce their taxable income. One of the tax deductions that is becoming more popular is the Section 179 tax deduction. Maybe you have excess cash on hand to purchase fixed assets, but maybe not. If you are low on cash, you can easily finance equipment purchases through Capital for Business, allowing you to take advantage of the Section 179 depreciation deduction.

 

What is the Section 179 Tax Deduction?

The Section 179 tax deduction allows businesses to deduct the full cost of assets in the year they are placed in service. Generally, business assets are depreciated over the useful life, which can range from 3 years to 27.5 years. However, with the Section 179 tax deduction, businesses can immediately expense the asset to reduce their taxable income.

Common business assets include software, machinery, equipment, office furniture, office fixtures, and leasehold improvements. It is important to note that the purchase of a building is not a qualifying asset for the Section 179 expense.

 

How Does the Section 179 Tax Deduction Work?

The Section 179 tax deduction is limited to $1,050,000 for 2021, phasing out dollar for dollar for asset purchases over $2,620,000. Let’s say you purchase $2,720,000 in assets for the year. You would only be allowed to take a maximum deduction of $950,000 with the rest of the assets being depreciated over the useful life. Since the phase-out limit is so high, most businesses will not encounter that issue.

Further limitations appear in the taxable income the business has for the year. The Section 179 deduction cannot create a loss, meaning the deduction amount is limited to the company’s taxable income. If your business purchases $100,000 in assets during the year, but you only have $50,000 of taxable income, you would only be eligible for a Section 179 deduction up to $50,000.

 

What Information Do I Need to Have?

There are a few pieces of information that will be required to be filed on the tax return when you claim the Section 179 deduction. The date placed in service, cost, description, and useful life are all required information. This information can easily be found on an invoice. Keep in mind that qualifying assets are based on the date placed in service.

If you purchase an asset on December 15, 2021, but don’t place the asset in service until January 1, 2022, you would not be allowed to take any deduction for 2021. Instead, the Section 179 deduction would be available for 2022 for that specific asset.

 

How Can the Section 179 Tax Deduction Help Me?

There are a few different benefits Section 179 can provide for your business. The first benefit is improved tax planning. Section 179 can help you reduce your taxable income, making it a great planning strategy. If you have a large amount of taxable income for the year and excess cash on hand, consider purchasing assets for your company.

Even if you don’t have the cash on hand, there are plenty of equipment financing companies that can work with you to help you purchase the assets your business needs. Reinvesting money is one of the top ways to effectively grow your business.

 

How Do I Claim the Section 179 Tax Deduction?

The Section 179 depreciation deduction is claimed on the tax return. This deduction is available for rentals and businesses. Once you determine you are eligible to take the deduction, you will fill out Form 4562 to claim the deduction. All of the other assets that are being depreciated according to their useful lives will be found here as well.

On a business return, the deduction will flow through to Schedule K, but on an individual return, the deduction will be listed on the Schedule C or Schedule E. Most tax return software automatically calculates the limitations, taking any guessing out of the calculation.

 

Section 179 Savings Calculator

See how much you can save with the Section 179 Tax Deduction.

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This calculator is intended to provide a potential tax scenario that may not apply to your business. Consult your tax professional to determine tax implications and benefits for your business.

 

The Section 179 tax deduction should be utilized by all businesses to reduce taxable income and add necessary assets to the business. Equipment financing is available through Capital for Business to help you acquire crucial equipment for your company. Don’t wait to take advantage of this tax deduction. With tax law constantly changing, there is no telling how long the Section 179 tax deduction will be available.

 

 

 

 

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Types of Eligible Section 179 Assets

Types of Eligible Section 179 Assets

Types of Eligible Section 179 Assets, the Section 179 qualifying asset rules need to be followed to avoid any issues with the IRS. The IRS clearly lays out which assets qualify for the deduction, and which do not, making it critical you differentiate between the two.

 

 

 

 

 

 

 

What Kind of Financing Do I Need for My Business?

What Kind of Financing Do I Need for My Business?

Making money is usually the primary purpose behind becoming a business owner. While there are never any guarantees for success, what is all but guaranteed is that you’ll need to spend money to make money, and usually a great deal of it. But what sorts of things will you be spending your financing on?

 

 

 

 

 

 

Expense Management

5 Expense Management Considerations for Small Business

Small businesses will encounter financial trouble. It’s just how the business goes sometimes. Managing your expenses can get complicated quickly. Apply these tips to your business and you’ll find your business running smoother than before.

 

 

 

 

 

 

 

 

FAQ: Section 179 tax Deduction

The Section 179 tax deduction allows businesses to deduct the full cost of assets in the year they are placed in service. Generally, business assets are depreciated over the useful life, which can range from 3 years to 27.5 years. However, with the Section 179 tax deduction, businesses can immediately expense the asset to reduce their taxable income.

Common business assets include software, machinery, equipment, office furniture, office fixtures, and leasehold improvements. It is important to note that the purchase of a building is not a qualifying asset for the Section 179 expense.

The Section 179 tax deduction is limited to $1,050,000 for 2021, phasing out dollar for dollar for asset purchases over $2,620,000. Let’s say you purchase $2,720,000 in assets for the year. You would only be allowed to take a maximum deduction of $950,000 with the rest of the assets being depreciated over the useful life. Since the phase-out limit is so high, most businesses will not encounter that issue.

Further limitations appear in the taxable income the business has for the year. The Section 179 deduction cannot create a loss, meaning the deduction amount is limited to the company’s taxable income. If your business purchases $100,000 in assets during the year, but you only have $50,000 of taxable income, you would only be eligible for a Section 179 deduction up to $50,000.

The first type of eligible property is tangible personal property. This is the most common form of fixed assets your business might have and includes machinery and equipment, office furniture and equipment, gasoline storage tanks and pumps, livestock, and portable air conditioners and heaters. Most assets you purchase in the ordinary course of business will fall into this category.

The next category of an eligible property that the IRS lays out is called other tangible property. This includes the major components of manufacturing, production, extraction, or waste disposal operations and the storage of fungible commodities and research facilities.

These assets include everything that can be physically removed from the building or premises, such as a piece of machinery within a building. There are many equipment financing options, such as through Capital for Business, that can help you secure the financing and equipment you need.

There are a few different benefits Section 179 can provide for your business. The first benefit is improved tax planning. Section 179 can help you reduce your taxable income, making it a great planning strategy. If you have a large amount of taxable income for the year and excess cash on hand, consider purchasing assets for your company.

Even if you don’t have the cash on hand, there are plenty of equipment financing companies that can work with you to help you purchase the assets your business needs. Reinvesting money is one of the top ways to effectively grow your business.

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