What is one thing small business owners should know about the Section 179 tax deduction?
To help small business owners stay informed of the Section 179 tax deduction, we asked tax experts and small business leaders this question for their best advice. From making purchases before the end of the year to being aware of the tax deduction’s limits, there are several insights that may help you when filing taxes and planning your business strategy in the coming years.
Here are seven tips small business owners should know about the Section 179 tax deduction:
- Make Purchases Before Year’s End
- Does Not Apply Overseas
- Use for Equipment and Real Property
- Ensure 50% Business Use
- Be Aware of Deduction Limits
- Not Beneficial For Everyone
- Plan Ahead for Best Use
Make Purchases Before Year’s End
Section 179 allows small business owners to take a depreciation deduction for certain assets in the calendar year the asset was purchased rather than depreciating that asset over a longer period of time. If you’re considering an equipment purchase and wish to finance that purchase, do so before year-end. The year-end purchase would allow you to take a full Section 179 deduction.
Carey Wilbur, Charter Capital
Does Not Apply Overseas
Small business owners should be aware that property outside the United States generally does not qualify for the Section 179 deduction. Knowing this is significant for ex-pats and internationally based business owners who expect to write off tangible property delta costs. To be sure of whether you qualify for the deduction or not, you should always consider consulting with a tax attorney before making strategic decisions.
Jason Kovan, International Tax Attorney
Use for Equipment and Real Property
Section 179 has been around for a long time. This provision allows small business owners to deduct the cost of certain qualifying property on their income taxes as an expense. There are some limitations to the election of this tax deduction, so it is best to consult your tax accountant on the best course of action based on your specific business needs. However, one thing that small business owners should know is that Section 179 can be used for depreciable personal property such as machinery, equipment, computers, and automobiles and also qualified real property such as improvements to nonresidential buildings including roofing, heating, ventilation, etc.
Brandon K. Berglund, Berglund Insurance
Ensure 50% Business Use
Section 179 is truly about allowing small businesses to invest in themselves. Because of this, make sure that whatever you purchase is actually used for the business. If any purchased items are used less than 50% of the time for your business, you won’t be able to claim them. So make sure whatever equipment you invest in is strictly for your business and that you use it the same year you intend to claim it on your taxes.
Randall Smalley, Cruise America
Be Aware of Deduction Limits
Section 179 deduction limits apply both to the partnership/S corporation and to each partner/shareholder. If the business income limit prevents an individual from deducting all or part of the Section 179 cost, the disallowed amount is carried over to the next tax year. However, if the Investment Limit (at the individual level) prevents deducting all or part of the expense, no carryover is allowed. Individuals with multiple business interests have to be aware of receiving more Section 179 deductions in a single year than the annual limit. The disallowed amount may not be carried forward but does reduce the individual’s basis in the business.
Joanne M. Elsen, CPA, PC
Not Beneficial for Everyone
When starting your small business, it’s so tempting to find and use all of the money-saving deductions that you can. But, unfortunately, the Section 179 tax deduction isn’t always beneficial to new businesses. If you’re not already making a net profit, it can actually be more beneficial to allow your property to depreciate over time and take those tax benefits at a later date.
Tom Mumford, Undergrads
Plan Ahead for Best Use
The Section 179 deduction is a helpful way for businesses to reduce their tax liability for that year. However, the deduction is limited by the amount of net profit you make for that year. Before purchasing any new equipment or property, make sure you work with your finance and tax teams to determine the best time to buy, based on income projections and tax liability. By doing that, you can ensure that you’ll get the highest deduction possible.
Jacob Dayan, Community Tax