Section 179 & Small Businesses: A Complete Guide

Section 179 of the Internal Revenue Code (IRC) is a tax deduction that allows businesses to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year. This can be a significant tax savings for small businesses, especially those that are investing in new equipment or software to grow their business.

What is Section 179?

Section 179 is an election that businesses can make to deduct the cost of qualifying equipment and software purchased or financed during the tax year, rather than depreciating it over its useful life. This can be a significant tax savings for businesses, especially those that are investing in new equipment or software to grow their business.

To qualify for the Section 179 deduction, the equipment or software must be used in the business and have a useful life of more than one year. Some examples of qualifying equipment and software include:

• Computers
• Software
• Office furniture
• Machinery
• Vehicles
• Security systems
• Medical equipment
  
  

What are the limits on the Section 179 deduction?

The maximum deduction allowed under Section 179 is $1,160,000 for tax year 2023. However, there is a phase-out limit of $2,890,000. This means that businesses that purchase more than $2,890,000 in qualifying equipment and software will begin to lose the benefit of the Section 179 deduction.

How can small businesses benefit from Section 179?

Small businesses can benefit from Section 179 in a number of ways. First, it can help them to reduce their taxable income and save money on taxes. Second, it can free up cash flow that can be used to invest in other areas of the business, such as hiring new employees or expanding into new markets. Third, it can help small businesses to compete with larger businesses that may have more resources to invest in new equipment and software.

Tips for small businesses on using Section 179

Here are a few tips for small businesses on using Section 179:

• Make a list of all the qualifying equipment and software that you plan to purchase or finance during the tax year.
• Estimate the total cost of the qualifying equipment and software.
• Determine if you will exceed the phase-out limit of $2,890,000.
• If you will not exceed the phase-out limit, you can elect to deduct the full cost of the qualifying equipment and software on your tax return.
• If you will exceed the phase-out limit, you can still elect to deduct the cost of the qualifying equipment and software, but your deduction will be reduced.

Section 179 can be a valuable tax deduction for small businesses. By understanding the rules and limits of Section 179, small businesses can take advantage of this tax deduction to save money on taxes and invest in their business.

Here are some additional tips for small businesses on using Section 179:

• Consider your business needs. Make sure that the equipment and software you are purchasing is necessary for your business and that it will help you to grow your business.
• Shop around for the best deals. Compare prices from different vendors to get the best deal on the equipment and software you need.
• Consider financing your purchases. Financing can help you to spread out the cost of your purchases over time.
• Keep good records. Keep track of all your receipts and purchase orders for qualifying equipment and software.
  
  

By following these tips, small businesses can take advantage of Section 179 to save money on taxes and invest in their business.

If you would like to learn more about Section 179, you can start by scheduling an introductory 10-minute Discovery Call and we would be happy to help.