Tax Planning

Section 179 Expense

Section 179 allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the full purchase price.

Section 179 is more beneficial to small businesses than ever. Today, Section 179 is one of the few government incentives available to small businesses and has been included in many of the recent Stimulus Acts and Congressional Tax Bills. Although large businesses also benefit from Section 179 or Bonus Depreciation, the original target of this legislation was much-needed tax relief for small businesses – and millions of small businesses are actually taking action and getting real benefits.

Let’s say you are contemplating purchasing a piece of equipment. You are wondering if you should purchase it this year or next year. You know you are going to need to purchase this piece of equipment, it is now just a matter of when. So you consult with your accountant, what will be your best option from a tax perspective.

The equipment costs $6,000. It will be Expensed (Depreciated/Used up) over 5 years. Which means you would get $1,200 of depreciation expense per year. This means you get to deduct that much of the expense each year.

What if we Section 179 it and Expense it all in the first year? How does that affect taxes?

This creates a $1,200 tax savings in the current year.
However, if you were expecting bigger profits in the next few years, we might save that depreciation expense for those years to reduce the profit then, as opposed to now.

(For more information on how it works, watch this video)

Want to learn more basic tax concepts and strategies? Enroll in our Tax Essentials course today, and use promo code “SAVEONTAXES” to claim it for free!