The Internal Revenue Code through Section 179 permits businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. Thus, if qualifying equipment is purchased or leased, the full purchase price may be deducted from gross income.
The § 179 deduction is a tax-savings incentive to encourage businesses to increase assets by purchasing equipment and self-invest. This deduction is affected by the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act) that was signed into law in 2015. This bill expanded the Section 179 deduction limit to $500,000, where it will remain for all of 2017.
The § 179 deduction was formerly referred to as the “SUV Tax Loophole” or the “Hummer Deduction” because many businesses utilized it to write-off the purchase of qualifying vehicles. However, in the last few years, Congress has significantly reduced the benefits of § 179 in this scenario.
Section 179 is a tax incentive aimed at assisting small businesses, which was part of its underlying public policy. Millions of small businesses receive substantial benefits from this deduction each year.
Depreciation allows the cost of equipment to be written off incrementally over a period of time. For example, if $100,000 is spent on equipment, $20,000 a year for five years may theoretically be the write-off. However, most business owners prefer to write off the entire cost of equipment in the year of purchase.
If this were possible, perhaps the business would purchase more in the present calendar year than after the present equipment has been fully depreciated. The underlying policy of the § 179 deduction is to “incentivize” such investment. Thus, for most small businesses, the entire cost of equipment up to $500,000 may be written-off on for 2017.
Businesses that exceed a total of $2 million of purchases in qualifying equipment have the deduction phase-out dollar-for-dollar and eliminated entirely above $2.5 million. The § 179 cap will be indexed to inflation in future years in $10,000 increments.
Calculating the proper amounts of the § 179 deduction and bonus depreciation may be complicated for some small business owners. In this situation, it is important for any taxpayer, whether an individual or business, to engage the advice of an experienced and knowledgeable tax professional. If you have any question about taxes, please call THE TAX EXPERTS at the Thorgood Law Firm at 212-490-0704 for assistance or learn more online at www.thorgoodlaw.com. The consultation is FREE!
