As Commercial Team Leader at Terrace Finance, I receive a lot of questions around Section 179 of the tax code this time of year. If you own a business that needs to buy equipment, then you really should know what Section 179 is and how you can use it to your advantage. I’ve compiled some answers to the most frequently asked ones here. As always, we are standing by to help businesses use this tax incentive to their advantage with a variety of programs, including ones with deferred payments, from our network of over 20 lenders.
Your questions answered…
Q: What is section 179 of the tax code?
A: Section 179 is a very straightforward tax incentive for small to medium-sized businesses created by the federal government to stimulate business. It allows you to deduct the full amount of equipment purchases within a single tax year rather than spreading the deduction out (depreciating it) across multiple years. The deduction is so generous that it can have a noticeable impact on the bottom line of a business.
Q: What percentage of an equipment purchase can I write off?
A: 100% up to $1,050,000 for 2021. Consult your tax advisor to determine eligibility of the equipment before making your purchase.
Q: If I can write off 100% of the purchase price, does that mean the equipment is free?
A: No! That would be too good to be true! Nevertheless, you can save a lot. 100% of the equipment price gets deducted from your taxable business income. If your tax bracket is 24% and you make a $100,000 purchase, the net result after taxes is as if you bought the equipment at 24% off. Try the calculator on the Terrace Finance Section 179 page.
Q: Does it have to be new equipment?
A: No. Used equipment is eligible also.
Q: What if I spend more than $1,050,000?
A: In 2020 you are still eligible for a deduction on a sliding scale until you spend over $2,620,000. However, eligibility completely goes away at $3,670,000. Consult your tax advisor for more specific information.
Q: Does the equipment have to be paid for in full to qualify?
A: No, the equipment can be financed any way you choose, and the full purchase price is deductible.
Q: Why is the 4th quarter so important when it comes to Section 179?
A: The tendency is for small businesses to put off important equipment purchases to try to save money, especially for seasonal businesses. However, the tax advantage of having an equipment purchase on the balance sheet before year-end, means that your business can enjoy almost immediate relief in the form of a reduced tax bill or increased tax refund in the first quarter of the new year.
Q: How can my business take advantage of Section 179 if business is slow in the 4th quarter?
A: Finance agreements and leases can be structured to have deferred payments allowing a business to acquire, start using, and receive the tax benefit before full payments kick in.
Q: Where do I find equipment financing with deferred payments?
A: There are thousands of lenders across the country that provide commercial financing. Terrace has assembled a network of lenders serving a wide range of business needs no matter the size or time in business. We can help you find a program that is a good fit. There is no fee to take advantage of our expertise!
If you would like a personalized assessment of your situation, feel free to give me a call:
John Papadopoulos at 954-636-8571