Purchasing all the equipment your business needs can be tough, especially when accounting for tax season. However, as a business owner, you owe it to yourself to take advantage of all major tax advantages possible, including the Section 179 deduction.
Not sure what Section 179 is or how it works? Read on for a detailed breakdown of the Section 179 tax code and how you can use it to acquire capital equipment for your business.
The Section 179 Deduction Explained
The Section 179 deduction is a special tax code that lets businesses deduct full purchase prices for any qualifying equipment and/or software that was purchased during the same tax year. That includes small family businesses (owned by about 13% of American families).
Say that you purchase a qualifying piece of business-related equipment in 2022. That means, under the Section 179 tax code, you can deduct the full purchase price for that equipment from your gross income, reducing how much you have to pay in business taxes for the 2022 year.
Through the Section 179 deduction, you can save a good amount of money and accomplish business expansion goals more quickly. The Section 179 deduction was created specifically by the government to incentivize business owners to invest in their enterprises. It has been in place for several years, but it was expanded and increased in 2018.
How Does Section 179 Work?
Section 179 is distinct from other forms of business equipment tax write-offs. In general, businesses are allowed to write off a little bit of the capital value of qualifying equipment each year. This write-off process occurs through depreciation.
For instance, if you purchase a $50,000 machine for your business, you can write off a certain percentage, like $10,000, a year for five years until it is fully “depreciated.”
Section 179 is different. Instead, you can write off the full value for that hypothetical business machinery in the same tax year. That’s $50,000 you can potentially deduct from your gross income. In this way, you’ll be required to pay fewer taxes for the 2022 year, and your refund might even be a little larger than you expect.
Through the Section 179 deduction, you can purchase the necessary equipment for your business right now instead of having to wait for several years. The majority of small businesses can write off qualifying equipment for up to $1,080,000.
That said, there are some limits to Section 179. For example, businesses can’t write off more than $1,080,000 for the 2022 tax year. Furthermore, Section 179 limits how much business equipment you can purchase – only up to $2,700,000 for the 2022 tax year. Still, this is an invaluable tax time tool you can’t afford to ignore.
What Businesses Qualify for the Section 179 Deduction?
So, want to know whether your business qualifies for Section 179 deductions? Odds are it does.
According to the Section 179 tax code, any business that purchases, finances, or leases new or used business equipment qualifies for the Section 179 deduction. You just have to spend less than $3,780,000 on business equipment over the current year.
Furthermore, you must purchase and put your business equipment into use between January 1 and December 31 of the year in which you want to take the deduction. So, for example, if you want to take the Section 179 deduction for 2022, you have to buy and start using deductible equipment before December 31 of this year.
What Constitutes “Capital Equipment”?
The Section 179 deduction is meant to help businesses purchase and use capital equipment quickly. Capital equipment is any property that:
- Is nonexpendable
- Is tangible (i.e., not a stock or bond)
- Has a useful life of greater than one year
- Has an acquisition cost of $5000 or more per unit
Note that the $5000 threshold above includes both the purchase price for the business item itself, as well as any expenditures needed to put the item in place or start using it. It also includes extra charges like taxes, installation costs, etc.
Since the definition of capital equipment is intentionally broad, practically any business equipment you use to run or improve your business qualifies. Here are a few examples of material goods that qualify for Section 179 deductions:
- Personal property used in your business
- Equipment or machines that are purchased for business use, like cash registers, forklifts, etc.
- Business vehicles that have a gross vehicle weight of more than 6000 pounds
- Computers or computer software you purchase “off-the-shelf”
- Office equipment and furniture like chairs, desks, and printers
- Any property attached to a business building that isn’t a building structural component, like a large manufacturing tool
- Business for partial business use, such as your personal vehicle (which you use to see clients and to travel on the weekends) – keep in mind that since vehicles depreciate an average of 15% per year, taking a Section 179 write-off can help offset the loss in value
- Improvements to nonresidential buildings and systems, like roofing, alarm and security systems, etc.
How to Take Advantage of Section 179 with Gravity Capital
The best way to take advantage of the Section 179 deduction is to purchase critical business equipment now, then save the receipts so you can accurately report that equipment for the deduction.
Of course, Section 179 doesn’t help you acquire the funds you need to purchase business equipment in the first place. Gravity Capital might be the perfect solution. It’s a fast flat loan provider that doesn’t set any monthly payments or compounding interest.
With Gravity Capital, you can get the financing you need to purchase business equipment quickly, then enjoy worry-free repayment. Gravity Capital just applies a percentage of all daily credit card sales to your funding balance.
Once you have the funds you need, purchase your business equipment, save the receipts, and apply for the Section 179 deduction when you do your taxes at the beginning of 2023.
As you can see, the Section 179 tax code is a great financial tool you can use to build up your business ASAP. Through the Section 179 deduction and through lending solutions like Gravity Capital, you can get the equipment your business needs to thrive sooner rather than later.
Contact Gravity Payments today to learn more.