Section 179 is more beneficial to small businesses today than ever. At Rhyme, we want to keep you informed on the tax benefits with purchasing our products and services.
Essentially, 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.
All businesses that purchase, finance, and/or lease new or used business equipment during tax year 2020 should qualify for the Section 179 Deduction (assuming they spend less than $3,630,000). For most, the entire cost of qualifying equipment can be written-off on the 2020 tax return (up to $1,040,000).
Most tangible goods used by American businesses, including “off-the-shelf” software and business-use vehicles (restrictions apply) qualify for the Section 179 Deduction.
For basic guidelines on what property is covered under the Section 179 tax code, please consult your tax advisor or the IRS website. Also, to qualify for the Section 179 Deduction, the equipment and/or software purchased or financed must be placed into service between January 1, 2020 and December 31, 2020.
Section 179 was designed with businesses in mind. That’s why almost all types of “business equipment” that your company buys, or finances will qualify for the Section 179 deduction.
All businesses need equipment on an ongoing basis, be it machinery, computers, software, office furniture, vehicles, or other tangible goods. It’s very likely that your business will purchase many of these goods during the year, and will do so again and again. Section 179 is designed to make purchasing / leasing that equipment during this calendar year financially attractive.
Please keep in mind that to qualify for the Section 179 Deduction, the office technology equipment listed below must be purchased and put into use betweenJanuary 1 and December 31of the tax year you are claiming.
- Computers
- Computer“Off-the-Shelf” Software
- The software must be purchased or financed with specificqualifying lease or loan.
- The software must be used in your business for income-producing activity.
- The software must have a determinable useful life.
- The software must be expected to last more than one year.
- The software must be readily available for purchase by the general public.
- The software must be subject to a non-exclusive license (e.g., it’s not just yours).
- The software must not have been substantially modified.
- Office Furniture
- Office Equipment
Please note – the above equipment qualifies whether new or used (but must be new to you), and also regardless of whether it was purchased outright, leased, or financed.
Section 179 can change each year without notice, so it benefits you to take advantage of this generous tax code while it’s available.
Section 179 and COVID-19
The following is information related to the Section 179 tax deduction and COVID-19 restrictions and measures.
Eligible Equipment
Tangible business equipment purchased to modify businesses and/or to conform with COVID-19 restrictions and measures will generally qualify for the Section 179 tax deduction. This includes sanitizing stations, temperature check stations, dividers/plexiglass shielding, new printed signage, and similar business equipment purchased to modify the workspace for employees and/or the public. As always, check with your tax professional or the IRS website for specifics on types of eligible equipment.
Section 179 is Not Affected by COVID-19 Financial Assistance
The Section 179 tax deduction is unaffected by any other government program a company may have participated in. For example, if a company received a forgivable PPP loan due to COVID-19 affecting their operations, they are still eligible to claim a Section 179 tax deduction provided they (a) purchased eligible equipment and put it into service by December 31, and (b) have a taxable income after any adjustments pertaining to the programs they participated.
Consider the following example:
EXAMPLE #1
Cost of new equipment $75,000
Total Deduction 1st Year $75,000
Marginal Tax Rate 28%
Your 2020 actual Tax Savings $21,000
Net Equipment Cost $54,000
Please consult your tax advisor regarding IRS Section 179 and all accounting procedures.