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Updated: April 1st, 2020
It’s not every day that small business owners catch a break, but with the recent passage of the annual spending bill by congress at the end of 2015, that’s exactly what happened.
OK, just to warn you, this article is about the tax code, something that tends either to provoke cold sweats or fits of sleepiness depending upon your personality. But worry not, as this is a change that could result in big improvements for your business and more money in your pocket at the end of the year.
There’s a thing called the Section 179 Deduction, and as far as arcane corners of tax law go, it’s pretty cool. What the Section 179 Deduction allows is for small and medium-sized businesses to purchase up to $500,000 in business-related equipment and write off the full cost of the expense that year. In actual fact, the deduction is available to any business, but the $500,000 limit is what aims it squarely at small and medium-sized businesses.
Does your business need new laptops? Expensive software? Chairs or desks? Pizza oven? Company car? Seriously, what do you need? Because you can get it now.
A potentially game-changing factor is that businesses may be able to take out a loan to buy the needed equipment. Combining the Section 179 Deduction with an Equipment Financing Agreement could be a good way to put extra money in your pocket this year. Basically, it’s possible that you could finance or pay for the cost of your equipment with the loan, and the amount you deduct from your tax could surpass the the amount you’ll repay on your loan.
A previous incarnation of the deduction was created during the Bush administration, though it was intended to be temporary. It relied upon a complicated depreciation schedule, requiring businesses to write off the value of a purchase according to its depreciation over its useful lifespan. Previously, you would have had to calculate the depreciated value of those computers, applications and office furniture and do some complicated accounting in order to use the tax break over the course of a few years.
In addition to making the deduction permanent, the new Section 179 is much simpler. Deduct the full cost of the purchase price up to $500,000 each tax year. Equipment purchases exceeding $500,000 may be eligible for further discounts according, though they involve dipping back in to that pesky depreciation schedule, so check here to investigate further: Tax Deduction Calculator (http://www.section179.org/section_179_calculator.html). As a caveat, you should always consult a tax professional before making any big tax-related decisions.
The deduction doesn’t happen automatically, so make sure that you or your tax professional completely fill out IRS form 4562 in order to utilize Section 179.
In making the Section 179 Deduction permanent, the US Government is acknowledging that businesses must make capital investments in equipment and other business needs in order to grow. This deduction is intended to allow you to invest in your business while still lowering your tax burden for the year. So treat yourself to some much needed, relatively worry-free brand new business equipment.
You can learn everything there is to know about the Section 179 Deduction by going here ( http://www.section179.org/index.html ).
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Louis DeNicola is the president of LD Money Media LLC and an experienced finance writer who specializes in credit, personal finance, and small business finance. Within the small business sphere, he helps business owners understand their financing options, cash flow management, business credit, and taxes. In addition to Funding Circle, you can find his work on BlueVine, Credit Karma, Experian, Wirecutter, and Lending Tree.