In the past few years, businesses waited all year long to find out if Congress would increase the standard 179 deduction limited from $25,000 to a larger amount. This made it difficult to plan significant year-end purchases—often leaving buyers scrambling to negotiate deals and take delivery in the midst of the holiday break.
Fortunately, in 2016, business can assess to evaluate their equipment needs, knowing that they can save up to nearly 30 percent (of the purchase prices) in tax savings.
NO MORE GUESSING
According to the Internal Revenue Service (IRS) Tax Code Section 179, qualifying businesses may deduct the full purchase (up to $500,000) of qualifying equipment and/or software financed from their gross income during the tax year. This incentive applies to the purchase of essential use equipment including machinery, computers and other tangible goods, placed in service before the year’s end (midnight December 31).
Instead of waiting for an act of Congress in the very last few weeks of the year, Section 179 limits are now locked in by the Protecting Americans from Tax Hikes Act of 2015, which allows businesses to write off up to $500,000 of qualified equipment each year. Bonus Depreciation, previously scheduled to expire at the end of 2014, has been extended through 2019 with a 50 percent rate for 2015—now allowing larger businesses that exceed the $2,000,000 limit on capital purchases to write off 50 percent of qualified equipment.
SECTION 179 FACTS
2016 Deduction Limit = $500,000
This deduction is good on new and used equipment, as well as off-the-shelf software. This limit is only good for 2016, and the equipment must be financed/purchased and put into service by the end of the day on December 31, 2016.
2016 Spending Cap on Equipment Purchases = $2,000,000
This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company is reduced on a dollar for dollar basis. This spending cap makes Section 179 a true “small business tax incentive.”
Bonus Depreciation: 50% for 2016
Bonus Depreciation is generally taken after the Section 179 Spending Cap is reached. Note: Bonus Depreciation is available for new equipment only.
CALCULATE YOUR SAVINGS
An example calculation is shown below. Apply your own numbers and see how much you’ll save by investing in your business in 2016. Assess your equipment needs right now to ensure that your business can take delivery, and take advantage of this potentially sizeable tax break.
| Eligible Equipment Purchases | $600,000 |
| First Year Write Off ($500,000 = maximum) | $500,000 |
| 50% Bonus First Year Depreciation (Updated to 50%) | $ 75,000 |
| Normal First Year Depreciation (20%) | $ 15,000 |
| Total First Year Deductions (add all three above) | $590,000 |
| CASH SAVINGS ($590 x 35% tax rate) | $206,500 |
| Equipment Cost After Tax Savings: (74 percent of purchase pricing) |
$443,500 |
For more information about the Section 179 deduction, please visit http://www.section179.org/.