The Section 179 Tax Code (179 deduction) allows businesses to deduct the full cost of a capital equipment purchase in year 1 versus a fraction of the total amount spread out over several years. This means you can save tens of thousands of dollars the next time you lease, purchase or finance equipment.
Section 179 helps a wide variety of organizations because almost any equipment used within the organization will likely qualify for the deduction. By deducting the equipment’s full cost, the final amount paid is drastically reduced.
For example, equipment purchases of $1,200,000 in 2019 would qualify for a $1,000,000 first year write-off, as this was the maximum amount allowed in 2018. Then, a $200,000 bonus first year depreciation can be applied thanks to the Tax Cuts and Jobs Act. The total first year deduction would then be $1,200,000. Cash savings add up to $420,000 ($1,200,000 x 35% tax rate), and the equipment cost after tax comes to $780,000.
Section 179 Qualified Financing for leasing or purchasing equipment can increase the benefits even more since the taxes you save with the deduction usually exceed the cash outlay for the year when the full Section 179 deduction is connected with a properly structured equipment finance or lease agreement.
So what does this mean?
When you lease or finance equipment using Section 179, you can deduct the full amount of the equipment purchase without paying the full amount this year. The results are a huge tax savings, and in many cases, tax savings from the deduction will make your bank account larger than if you never financed the equipment in the first place!
Leasing equipment using Section 179 allows you to make a smaller payment which allows you to manage cash flow while minimizing out-of-pocket cash on a non-tax capital lease while still realizing the full Section 179 deduction.
Section 179 can change each year. Congress has raised the deduction limit, let higher limits expire, and then raised them again over the past several years. Previous tax changes and stimulus packages have also affected Section 179, and our team of experts stays on top of the changes so that our clients can get the greatest benefit possible.
Taking advantage of Section 179 is easy—just lease, purchase or finance equipment and submit a special IRS form. To qualify for the deduction, the equipment needs to be leased, purchased or financed and placed into service by midnight, December 31 of the year for which you are taking the deduction.
When you’re ready to take advantage of Section 179, we advise that you speak with a tax professional who is familiar with this tax code. They can help make sure you are securing the right type of agreement—before you sign any paperwork—to make sure IRS requirements are met. It’s also a good idea to talk with your tax professional about your independent tax situation so that claim limits, purchase limits, and other factors are clearly understood and accounted for.
The Republic First National team is excited to help your organization maximize the Section 179 deduction. You may want to take advantage of this use-it-or-lose-it write-off, and our team is here to walk you through the process from start to finish while providing referrals to the proper tax professionals.
Taking advantage of the 179 Deduction could be the best business decision you make this year!