When you're a small business, it's critical to get your taxes right. Many small business owners look for ways to maximize deductions to minimize how much tax they pay. One tax-saving loophole not everyone knows about that could help is the tax code Section 179 deductions. If you're unaware of what Section 179 deductions is, this blog will help define it for you. We'll explain tax 179 deductions and how you can take advantage of them with the help of your MSP.
As usual, we need to let you know that these offers may not apply to your business. To get the most out of this government program, we recommend consulting with your tax advisor. Now let's learn how to save some money!
What are Section 179 Deductions?
When we talk about 179 deductions, these are the classic " tax deductions," but they offer extra benefits. With many write-offs, you can only take partial deductions over a few years. Suppose you buy a car for your business, but you can only write off a portion of the value over the next five years. By definition, Section 179 deductions in the tax code allows a business to deduct the value of a property purchased for the business against any profits (or losses) that happened during the year it was purchased and implemented, thus lowering the total tax burden. This "property" falls into the following categories:
Business Personal Property: This would include anything purchased for business use that isn’t bolted to a floor or wall. This includes furniture, computers, software — even paper and pens!
Machinery and Equipment: This includes items purchased for businesses that are too large to move or are bolted in place. An example of this would be a printing press or conveyer belt.
Business Vehicles: These are cars or trucks with a gross weight of more than 6,000 lbs and are used exclusively for business purposes.
Listed Property: This is property used for business purposes. In this case, you don't have to use it entirely for business purposes, but you can only deduct the portion used for business proportionate to the time used. For instance: if you have a home office and work for eight hours a day for five out of seven days a week, it means you use your home for business purposes about 23.7% percent of the time, and therefore you could write off 23.7% of your mortgage.
Capital Improvements: When you improve a building used for your business, you can write off that expense. This section also includes items like air conditioning or alarm systems.
Section 179 – the basics for SMB Tax deduction
This section applies to deductions for property depreciation. It doesn't increase how much you can deduct overall, but it does give smaller businesses the option to act more quickly. In some cases, an asset may be usable for up to 39 years. Section 179 means that a company can declare the deduction of this asset in one year alone instead of spreading over a longer time. Let's say, for example, that a bar buys a new $4000 television. Based on ten years of the TV's life, straight depreciation would only allow the business to deduct a percentage of the cost every year for ten years. With Section 179, the business owner deducts the whole amount the first year.
Why is this useful to small and newer businesses?
When you set up a new business, you have a lot more going out than you do coming in, and there are a lot of assets that need to be purchased. Section 179 deductions means that new business owners can take advantage of deducting their purchases now. Smaller but established businesses can also take advantage of buying new assets to help grow their company. Buying things upfront is costly, so with Section 179 deductions, this outgoing is less burdensome. In addition, you don't have to wait years to benefit from tax deductions when you purchase assets.
What assets qualify for Section 179 deductions?
It is possible to deduct taxes for business assets that will last over one year (as determined by the IRS). These include:
- Office furniture
- Business equipment
- Business vehicles
Of course, more groups apply, so talk to your tax advisor for more info.
MSP – How can they help?
A Managed Service Provider can help you maximize your tax savings from Section 179 deductions. In addition, they will be able to guide you through the options for your hardware and software needs. Finally, they can help forecast your business's future needs in terms of technology, including purchase, finance, or lease services for equipment. Contact us before time runs out!