Section 179 Deductions - Everything You Need to Know
Curious about how IRS Section 179 tax deductions can benefit your business? Don't worry, they're simpler than they may seem. Here we break down key info about Section 179 deductions. Use this resource to maximize your savings for tax season.
By choosing to claim Section 179 deductions, you can write off 100% of the purchase price for eligible property the very first year it's put into service. This tax incentive is designed to encourage business investments. Particularly, it benefits small businesses by making large purchases more affordable.
For business owners like you, this translates to immediate and substantial savings!
Discover the advantages associated with Section 179 Deductions, and save thousands on essential business investments.
Please note that we at Burkett are not tax professionals. Consult your tax preparer to decide what's best for your business.
Key Considerations - Section 179 Deductions
Use the guidelines to decide if Section 179 deductions will benefit your business.
- How Section 179 deductions work
- Qualifying factors
- Bonus depreciation vs. Section 179 deductions
How Section 179 Deductions Work
Tracking all business purchases regardless of size is essential when tax season comes around. Keep a detailed record throughout the year of any business purchases you make to maximize your eligible deductions on your business taxes.
When claiming Section 179 deductions, you can deduct the full purchase amount the first year the equipment is in service. That means making a large business investment is just a little easier. By understanding the available tax breaks you can take advantage of, you'll be able to create an accurate budget for improvements throughout the year.
Here's how it works.
Say you bought a $10,000 piece of restaurant equipment for your business. Normally, deductions would be spread over the time of the equipment's useful life. Under Section 179, you can deduct the full purchase amount from net income, as long as it meets all other qualifications.
Assuming a 35% tax bracket, that's a tax savings of $3,500!
These savings lower the cost of your $10,000 purchase to $6,500. Calculate these tax breaks into your business decisions at the time of purchase to determine what upgrades you can provide to your business!
Check this list of qualifying factors to see if any business purchases you've made are eligible for a Section 179 deduction:
- Business use: The IRS specifies that purchased items must be used for business purposes at least 50% of the time to qualify. That means you may be eligible for deductions on more than just commercial restaurant equipment. Any supplies purchased for and used in your business over half of the time can be claimed under Section 179.
- Acquired by purchase: Equipment does not need to be purchased outright to qualify. Leased equipment, or equipment bought with a loan still fall under this tax break. However, the purchase does need to be acquired by your company via an exchange of money according to the IRS. That means gifts and inherited property will not be eligible. The IRS also specifies that property bought from a direct relative will not qualify.
- In Service: To qualify for a Section 179 deduction, purchased equipment needs to be fully operational by the end of the year. That means you must be using your equipment for your business by December 31st to qualify on that year's tax preparations.
In order to keep this tax break truly a small business incentive, the IRS evaluates the US economy and inflation rates annually. This helps them determine an appropriate cap on available deductions for the tax year.
The cap on eligible purchases is adjusted every year, so be sure to check online or with your tax preparer for the current cap. Should your business exceed the cap on eligible purchases in a tax year, your Section 179 deduction will be reduced by the overage amount.
Bonus Depreciation vs. Section 179 Deductions
Of course, there are other available options when looking for tax breaks for your business. Once you've taken full advantage of any applicable Section 179 deductions, some tax experts recommend filing for Bonus Depreciation.
Let's look at how they differ:
- Bonus Depreciation: With this tax deduction, business owners are able to report a larger chunk of depreciation in the year the property was purchased and in-service. There is no cap determined for this type of deduction, making it perfect for larger businesses or businesses that have exceeded the cap for Section 179 deductions.
- Section 179 Deductions: Perfect for small business owners, this deduction has a yearly cap to specifically benefit small businesses. Claim 100% of the purchase cost of your eligible equipment in the year that it's purchased.
Both of these IRS programs are available every tax year for business owners.
When it comes to processing your small business taxes, understanding and leveraging the benefits of a Section 179 deduction can make a substantial difference. We know that replacing or purchasing additional restaurant equipment is a significant financial commitment for any business.
It's crucial to factor in the available tax deductions when financially planning for investments. By claiming a Section 179 deduction, you have the opportunity to offset a significant portion of your equipment costs. To maximize these benefits, remember to keep meticulous records of all your business purchases throughout the year. This ensures that you can take full advantage of this valuable tax incentive. So, whether you're expanding your operations or upgrading essential equipment, Section 179 will provide significant tax savings.
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Call us at 800-828-8564 to talk to a dedicated sales representative about qualifying restaurant equipment and supplies.
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