Understanding Section 179 Deductions for Small Businesses
What are Section 179 deductions?
Section 179 allows businesses to deduct the full amount of an equipment’s purchase price up to a certain limit. When you purchase property, like vehicles or machinery, you can get a tax deduction for using it for business purposes. The deductions are known as depreciation. Depreciation is the expense of buying property over several years.
These deductions can help small businesses save money on tax returns. You can make bigger deductions in the first year of buying and using the property by taking the Section 179 deduction. Section 179 is aimed at general business equipment and other off-the-shelf software. As long the property you buy will be used for business operations, it qualifies for the deduction. Some of the equipment that qualifies for the deduction can be found here.
A business owner can lower the amount they paid for equipment and/or software by deducting the full cost. The benefits can also be further expanded if the owner chooses to lease or finance the equipment and software using Section 179 Qualified Financing. For this to happen, you will need to buy ( or finance or lease) the equipment and then use this IRS form.
In addition to taking a Section 179 deduction, the owner can take an additional bonus depreciation of 100 percent in the first year. The depreciation is taken in the first year on the property that is new to the business.
How Can a Property Qualify For a Section 179 Deduction
For a property to qualify for a Section 179 deduction, it has to have been purchased or leased or financed and put into service by midnight of December 31st of the year the deduction will be taken. The property must be tangible and depreciable property that is acquired for use in the conduct of a business. The property has to have more than 50 percent use in the business, and you can only deduct the percentage used for business. For example, if you buy a car for business travel use and only use 60 percent for business, the Section 179 deduction will be 60 percent of the car’s cost. The Section 179 deduction allows taxpayers to deduct the cost of business properties as expenses when used in service for the business. The property deducted must be purchased for business use and be put into service in the year that you claim the deduction.