While the new tax code has been controversial to say the least, your company could see real benefits in terms of equipment deductions. We’ll dissect Section 179 of the tax code and show you how to take advantage of possible 2018 deductions. Plus we'll provide you with an example calculation.
DEFINING SECTION 179 OF THE TAX CODE
According to Section179.org, “Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment...purchased or financed during the tax year.”
Instead of depreciating your equipment each year, you could write off the full cost of the equipment for the year you buy it.
HOW CAN YOU QUALIFY FOR THE DEDUCTION?
Any business that purchases, finances or leases less than $2,500,000 in new or used business equipment during 2018 should qualify. What exactly does the term “business equipment” mean? Here’s a list of business equipment that qualifies for the deduction.
If more than $2,500,000 of equipment is purchased, financed or leased the deduction decreases on a dollar for dollar scale. Meaning the deduction is mostly beneficial for small to medium sized businesses.
Additionally, the equipment must be used for business purposes more than 50% of the time. If you’re planning to deduct a forklift, that won’t be much of a problem.
As we mentioned above, there is a $2,500,000 limit to the total amount of equipment purchased. There’s also a limit of $1,000,000 to the total amount that can be written off or deducted.
For 2018, bonus depreciation is available for both new and used equipment at 100%. However, bonus depreciation isn’t always offered at this rate. In 2017 it was 50% and it applied to new equipment only.
This presents a huge opportunity to acquire new or used equipment with more deductions than you might see in the future.
Usually, Section 179 is taken first, then Bonus Depreciation is applied.
CALCULATING YOUR 2018 SECTION 179 DEDUCTION
To calculate this example deduction, let’s assume a 35% tax bracket.
*Deduction example is based on fictitious numbers and is assuming equipment is 100% for business use as well as a 35% tax bracket. Your tax adviser should be consulted for details.