What is Section 179?
Tax time can be a huge headache for many people, and that problem only intensifies when you’re a business owner. Various laws apply, and they can differ depending on the type of business you own.
One confusing tax topic is Section 179. Many business owners find it complicated and choose to simply skip over this section. While it can be confusing, knowledge is power. By not taking the time to learn more about this tax deduction, you could be losing out on thousands of dollars in deductions every year. With tax season quickly approaching, here are some things you should know about Section 179 when you file your tax return for 2019.
How Does Section 179 Work?
Essentially, Section 179 allows business owners to deduct high-ticket equipment and other items they purchased or financed during the tax year. For tax purposes, you will use IRS Form 4562. If you use TurboTax or some other tax software, it will walk you through the process.
The amount you receive is based on the depreciation of the item over time. Qualifying purchases include vehicles, machinery, and property. Large purchases such as computers, appliances, and furniture can also be deducted, as long as it is considered tangible, depreciable property that you used for business purposes.
If you own a construction company and you bought a tractor for company use, you would be able to deduct the entire cost through Section 179. If your gross income was $100,000 and the tractor cost $50,000, you would be able to deduct $50,000 from your income. The government allows you to do this because they want to encourage you to make purchases that will further your business.
Keep in mind that you must also use the property the same year you buy it. If you bought a computer in 2019 and it’s still sitting in the box in April 2020, you cannot claim it.
In the past, you could claim only 50% of the purchase price in the first year, and then claim smaller percentages in subsequent years. This is no longer the case. You can now take the full 100% deduction in the first year.
Many businesses once used this deduction to write off vehicle purchases, such as SUVs and sports cars. However, deduction amounts for these purchases have decreased in the past few years.
There are some limits to 2019. You can deduct up to 100% of the cost of the equipment. You can spend up to $2.5 million on equipment, but you can claim only $1 million, which should be more than enough for most small businesses.
If you own a business, make sure you take advantage of all the tax deductions available to you. Section 179 is one of them. Don’t overlook this important tax deduction. Count on Ash Wasilidas, CPA Firm to get your tax returns done accurately. He has experience working with all sorts of clients, from businesses to individuals. To learn more, call (617) 462-6651 or fill out the online form.