Sandra Wärenhed | 2022-11-24
Taxes typically are not most people’s idea of fun, but what if we told you that there’s a way to write off the full price of qualifying equipment and/or software purchased or financed during the tax year from your gross income? That’s right, investing in new waste management solutions for your business just got easier. Hopefully that gets you a little more excited to talk about the Internal Revenue Service (IRS).
What is Section 179?
Section 179 of the U.S. internal revenue code is an immediate expense deduction that business owners can take for purchases of business expenses related to depreciable business equipment. This allows you to lower your current tax year liability instead of capitalizing and depreciating the asset over a period of time in future tax years. Taking the expense deduction provides the opportunity for an immediate relief on your tax burden, as opposed to capitalizing and depreciating the asset, which would mean smaller deductions to be taken over a longer period of time.
This deduction can be claimed if the piece of equipment is purchased or financed and the full amount of the purchase price is eligible for deduction. This could be perfect for you if you’re a small business, opening a new location, or if you’ve been considering a baler or compactor but have shied away due to the initial upfront costs associated with purchasing or financing a machine.
What type of equipment is eligible?
So, you might be wondering what qualifies as “depreciable business equipment.” Things like cars, office equipment, office furniture, software, computers and business machinery are covered. And, yes, even balers and trash compactors!
However, it’s important to note that the equipment must be installed and in service during the tax year for which the deduction is being claimed. If you’d like to have your machine covered under Section 179 in 2022, that means you have until December 31 to get it installed. Additionally, the equipment must be used for business purposes more than 50% of the time to qualify.
Is there a limit on deductible costs?
There is a limit on how much you can deduct within a tax year. According to the IRS, the maximum amount you can elect to deduct for most Section 179 property installed in tax years beginning in 2022 is $1,080,000 of the value of the qualified equipment. The total amount of equipment purchased is also limited to a maximum of $2,700,000 in order to qualify.
Here’s a sample Section 179 calculation to help you wrap your head around the benefit of this tax code:
Section 179 is a great way to secure a much needed tax break and huge savings benefits to apply toward other areas of the business for companies who qualify. Time is running out to qualify for the 2022 deduction, as the year quickly comes to an end. Reach out to us at firstname.lastname@example.org for help finding the best machine for your needs and getting it installed before the year’s end.