Expanded Section 179 Deduction Limit
IRS Section 179 deduction isn’t really as mysterious or complicated as it sounds. Sure, there is a lot of info to sort through and maybe translate, but once you do, you will see this tax code is pretty straightforward and offers businesses great benefits. Essentially, IRS Section 179 of the IRS tax code 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 from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves. IRS Section 179 is part of the Stimulus Bill and is aimed to help small businesses, although large businesses are not excluded from cashing in on this benefit.
To try to explain this in basic language, what typically happens outside IRS Section 179 is that when a business buys certain equipment items, they typically get to write them off a little at a time through depreciation. Now, while it’s true that this is better than no write-off at all, most business owners would really prefer to write off the entire purchase at once in the year they made it. The idea behind this tax code is to allow businesses to write off the purchase in the same year, hoping then that they invest in more technology since they were able to recoup their funds. Therefore, helping our economy.
Most tangible goods including “off-the-shelf” software and business-use vehicles (restrictions apply) qualify for the IRS Section 179 Deduction. Also, to qualify for the IRS Section 179 Deduction, the equipment and/or software purchased or financed must be placed into service between January 1, 2016 and December 31, 2016. The equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the IRS Section 179 Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for IRS Section 179. Click here to view the list of equipment that qualifies. If you have a business and technology need and are unsure if it qualifies, the best thing to do is check with your accountant.
There are limits on the amount of benefits:
2016 Deduction Limit = $500,000
This deduction is good on new and used equipment, as well as off-the-shelf software. This limit is only good for 2016, and the equipment must be financed/purchased and put into service by the end of the day, 12/31/2016.
2016 Spending Cap on equipment purchases = $2,000,000
This is the maximum amount that can be spent on equipment before the IRS Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true “small business tax incentive”.
Bonus Depreciation: 50% for 2016
Bonus Depreciation is generally taken after the IRS Section 179 Spending Cap is reached. Note: Bonus Depreciation is available for new equipment only.
Section 179 can change each year without notice, even mid-year, so don’t hesitate to take advantage of this benefit. Section 179 offers small businesses a great opportunity to maximize purchasing power and you will find that most of the equipment your business will purchase, finance or lease qualifies for the deduction. 2W Technologies has worked with organizations that are taking advantage of their Section 179 deduction and would be happy to go through the process with you as well. 2W Tech is a full service IT Consultant and Epicor ERP Consultant.