If you’re considering buying equipment or technology for your business, a tax incentive may be available to ease the financial burden of investing in your company. Section 179 of the IRS tax code allows qualifying businesses to claim an immediate deduction for up to the full purchase price of depreciable assets, rather than spacing the deduction out over future years.
That means you may be able to acquire new equipment to help your business grow now with a smaller potential short-term impact on cash flow. Here’s what you need to know to take advantage of Section 179.*
Many types of new and used business equipment qualify for Section 179. The list includes machinery, certain vehicles that weigh more than 6,000 pounds, computers and software. The deduction must be filed for in the same year the equipment is acquired and put into use.
The last part is important. Because of persistent supply chain issues, there can be some lag time between buying and receiving equipment. If your new equipment isn’t being used by Dec. 31, it can’t be counted on this year’s tax filing.*
“If you’re thinking about taking advantage of Section 179 this year, I recommend talking to your EquipmentShare sales rep now to ensure you get your equipment and it’s up and running by the end of the year,” said Jody Beasley, EquipmentShare’s director of national equipment sales.
Because Section 179 is intended for small and mid-sized businesses, there are limits to the maximum deduction. In 2022, the most you can deduct is $1.08 million. To receive the full deduction, the total amount of equipment purchased cannot exceed $2.7 million. Every dollar spent over that $2.7 million threshold is a dollar less that can be deducted.
However, there is an additional first-year tax deduction that can help businesses of all sizes. It is called bonus depreciation, and it’s often used by companies that buy equipment that costs more than the Section 179 maximum deduction.* Keep in mind, 2022 is the last year 100% of the purchase price of equipment can be immediately deducted through bonus depreciation. Starting in 2023, the percentage is scheduled to decrease by 20% per year as the bonus depreciation program is phased out.
Your business is unique, and depending on its size and growth timeline, it might make sense to get immediate tax relief or to spread out the savings over the life of your depreciating assets. Consult with your accountant or tax adviser to make sure you qualify for Section 179 and ensure you’re making the right financial decision for your business.
*Not all buyers are eligible for tax deductions. EquipmentShare does not provide tax, legal or accounting advice. Contact your CPA or financial advisor for advice.