Section 179 Deductions - Everything You Need to Know

What are Section 179 deductions and how can they benefit your business? 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.

With Section 179 deductions, you can write off 100% of the purchase price for eligible property the first year it's in service. This tax incentive helps businesses make larger purchases. 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.

Key Considerations - Section 179 Deductions

Use these guidelines to decide if Section 179 deductions will benefit your business.

• What are Section 179 deductions
• Qualifying factors
• Limitations
• Bonus depreciation vs. Section 179 deductions

What are Section 179 Deductions?

These tax deductions are tax benefits geared toward small-business that help front the cost of large business purchases.

Tracking all business purchases regardless of size is essential when tax season comes around. Keep a detailed record during the tax year of any business purchases you make. This will help 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 available tax breaks, you'll be able to create an accurate budget for improvements throughout the year.

Here's how Section 179 deductions work:

When you buy restaurant equipment for $10,000, you typically spread out the tax deductions over several years. However, with Section 179, you can deduct the full $10,000 from your taxable income in the first year, as long as the equipment qualifies.

This immediate deduction offers substantial tax savings.

In a 35% tax bracket, a $10,000 deduction saves you $3,500 on your taxes, effectively lowering the equipment's cost to $6,500.

By applying these tax breaks at the time of purchase, you can make more strategic business decisions and optimize your budget, particularly if you're a small to mid-sized business looking to maximize upfront savings.

Section 179 - Qualifying Factors

Check this list of qualifying factors to see if any business purchases you've made are eligible:

• Business use: For Section 179 deductions, the items you buy must be used in your business at least 50% of the time. This applies to both large purchases like restaurant equipment and smaller business-related items.
• In Service: To qualify for Section 179 benefits, equipment must 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.
• 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.

Limitations

To remain a small business incentive, the IRS evaluates the US economy and inflation rates annually. This helps them determine an appropriate cap on available Section 179 deductions for the tax year.

The maximum amount you can deduct with Section 179 changes every year. If your purchases go over this limit, the extra amount won’t be fully deductible. Check the current limit online or ask your tax preparer.

Exploring Tax Breaks: Section 179 vs. Bonus Depreciation

It's important to know the main differences between Section 179 and Bonus Depreciation before making a large business purchase. Both offer significant tax savings, but they work differently and suit different business needs.

Section 179 Deductions

• What It Is: Section 179 lets businesses deduct the total amount of equipment the year it's put into service. Available up to a specific limit.
• Annual Limits: Check online or with your tax preparer for this year's limit.
• Flexibility: Choose which purchases to apply the deduction to and even spread the deduction over multiple years if needed.
• Best For: Ideal for small business owners that want to fully write off equipment costs in the year of purchase. If your purchase won't go over the deduction limit, Section 179 may be the best choice for you.

Bonus Depreciation

• What It Is: Bonus Depreciation allows businesses to deduct a large portion of eligible equipment purchases in the first year of service.
• No Limits: Unlike Section 179, there's no limit on the amount you can deduct. This can be especially beneficial if you're making large investments.
• Less Flexibility: Bonus Depreciation must be applied to all assets within the same class. For example, if you apply it to one 5-year asset, you must apply it to all 5-year assets purchased that year.
• Best For: Larger businesses or those with significant investments that exceed the Section 179 limits. It's also useful if you're not yet profitable. Bonus Depreciation can create a net operating loss to carry forward to future tax years.

Combining Both Tax Deductions

You can use both Section 179 and Bonus Depreciation in the same year. Typically, businesses use Section 179 first to maximize deductions and then apply Bonus Depreciation to any remaining eligible costs.

Final Thoughts

Using Section 179 Deductions and Bonus Depreciation depends on your business size, profitability, and investment plans. Consulting with a tax professional is crucial to determine the best strategy for your specific situation.

Understanding and using Section 179 can greatly help with your small business taxes. We know that buying or replacing restaurant equipment is a serious expense for any business.

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.

Keep tax breaks in mind when expanding your operations or upgrading commercial restaurant equipment. Section 179 will provide significant savings on your federal tax returns.