Section 179 Explained
What is Section 179*?
Section 179 of the tax code was created by the federal government to help stimulate small to medium-sized businesses. 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 can have a noticeable impact on the bottom line of a business.
*Contact your tax or legal advisor for additional information and specific guidance on the use of Section 179 for your business.
Do the Math**!
**This calculator presents a potential tax scenario based on typical assumptions that may not apply to your business. This page and calculator are not tax advice. The indicated tax treatment applies only to transactions deemed to reflect a purchase of the equipment or a capitalized lease purchase transaction. Please consult your tax advisor to determine the tax ramifications of acquiring equipment or software for your business.
Since you asked…
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, or learn more here.
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 or $76,000. Try the Section 179 calculator above.
Q: Does the equipment have to be new to be eligible?
A: No. Used equipment is also eligible.
Q: What if I spend more than $1,050,000 in a year on equipment?
A: In 2021 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 Finance has assembled a network of lenders serving a wide range of business needs no matter the size or time in business. Our team can help you find a program that is a good fit.