Death and taxes, right? Neither can be escaped. But sometimes the Internal Revenue Service (IRS) actually puts something in place that’s intended to help business owners. Meet Section 179, written to motivate the economy to move in a positive direction by encouraging businesses to purchase new or used equipment.
Typically, equipment purchases are depreciated over a number of years, meaning smaller annual write-offs instead of one big one the year in which the equipment is purchased. Section 179 changes that, allowing qualified businesses to write off the entire cost of new or used equipment as well as off-the-shelf software as long as they stay under the deduction limit, which for 2022 is $1,080,000.
Additionally, the 2022 spending cap is $2,700,000. That is the maximum amount that can be spent on equipment before the Section 179 deduction available begins to be reduced on a dollar for dollar basis. It’s this spending cap that makes this provision a small business tax incentive.
What do you need to qualify for the Section 179 deduction? Actually, nothing. There are no restrictions on company size or type of company that can take advantage of this tax credit; it applies to tangible personal property such as machinery and equipment purchased for use in a trade or business and qualified real property. It’s worth noting that the definition of qualified real property was amended in 2017 to mean qualified improvement property and some improvements to nonresidential real property such as roofs, heating, ventilation and air-conditioning systems, fire protection and alarm systems, and security systems.
What do you need to get started? Gather up the documentation on the purchases you believe may be eligible and share them with your tax professional. Also, if you’re on the fence about whether to make a purchase before the end of the year, you may want to do it before the ball drops on December 31 if you are interested in this tax deduction for 2022.
The Takeaway
As a business owner, you know that spending smartly and minimizing your tax burden are good strategies to help achieve a healthy bottom line. But you should be aware that spending in the right ways—particularly to secure equipment that can help your business grow—can actually result in tax savings through the use of Section 179.
If you have any questions about Section 179 or you want to make an end-of-year equipment purchase, give Clear Skies Capital a call at 800-230-9822. We’re happy to share our expertise with you.