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Section 179 at a Glance for 2020
Section 179 is a great way to accelerate your tax benefits. Most people think the Section 179 deduction is some mysterious or complicated tax code. It really isn’t. Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves.
Section 179 is one of the few government incentives available to small businesses and has been included in many of the recent Stimulus Acts and Congressional Tax Bills. Although large businesses also benefit from Section 179 or Bonus Depreciation, the original target of this legislation was much needed tax relief for small businesses – and millions of small businesses are actually taking action and getting real benefits.
2020 Deduction Limit = $1,000,000 (one million dollars) This deduction is good on new and used equipment, as well as off-the-shelf software. To take the deduction for the tax year 2020, the equipment must be financed or purchased and put into service between January 1, 2020 and the end of the day on December 31, 2020.
2020 Spending Cap on equipment purchases = $2,500,000 This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true “small business tax incentive” (because larger businesses that spend more than $3.5 million on equipment won’t get the deduction.)
Bonus Depreciation: 100% for 2020 Bonus Depreciation is generally taken after the Section 179 Spending Cap is reached. Bonus Depreciation is available for both new and used equipment.
Here’s How Section 179 works:
In years past, when your business bought qualifying equipment, it typically wrote it off a little at a time through depreciation. In other words, if your company spends $50,000 on a machine, it gets to write off (say) $10,000 a year for five years (these numbers are only meant to give you an example).
Now, while it’s true that this is better than no write-off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it.
And that’s exactly what Section 179 does – it allows your business to write off the entire purchase price of qualifying equipment for the current tax year.
This has made a big difference for many companies (and the economy in general.) Businesses have used Section 179 to purchase needed equipment right now, instead of waiting. For most small businesses, the entire cost of qualifying equipment can be written-off on the 2020 tax return (up to $1,000,000).
Limits of Section 179
Section 179 does come with limits – there are caps to the total amount written off ($1,000,000 for 2020), and limits to the total amount of the equipment purchased ($2,500,000 in 2020). The deduction begins to phase out on a dollar-for-dollar basis after $2,500,000 is spent by a given business (thus, the entire deduction goes away once $3,500,000 in purchases is reached), so this makes it a true small and medium-sized business deduction.
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*All information provided from Section179.org All examples provided are for illustrative purposes only. Actual numbers will vary based on credit & individual financial situations. It is recommended that each customer review their own unique situation with their tax advisor. All transactions are subject to equipment & credit approval.