Many small businesses are normally familiar with a number of the small business tax deductions that can help you save cash at tax time; however the Congress approved an expansion of an eminent tax deduction for small business equipment purchases. This deduction is also referred to as the Section 179 deduction, and recently increased to $500,000 and made permanent, consistent with the Protecting Americans from Tax Hikes Act of 2015.
This small business tax break is meant to make it more affordable for businesses to purchase business equipment, such as automobiles, computers, office furniture, equipment and other corporeal capital investments, by allowing small businesses to deduct up to $500,000 every year in qualifying business equipment purchases from their taxable earnings.
Section 179 has been around for many years; however the ranges and availability of this tax deduction had been unpredictable. When it was initially established, Section 179 deductions had yearly limit of $10,000. The Congress increasing the limit every year; however in January 2015, the limit fell from $500,000 to $25,000. When Congress passed the Protecting Americans from Tax Hikes Act of 2015 in December 2015, they returned the deduction limit to $500,000 permanently in order to clear up any improbability about the policies for this kind of small business tax deduction.
Small businesses were allowed to withhold the value of entitled business equipment purchases, however under general rules; they had to withhold only a part of the value of the equipment every year. For instance, if a small business purchases $5,000 new computer systems, they might have to take away $1,000 per year for five years. The Section 179 allows your small business to deduct the total value of certain business equipment purchases in the same tax year that the purchases are made, rather than having to decrease in value or deduct the amount in parts on yearly basis over the life of the equipment.
Things To Know:
- Section 179 has a limit of $500,000 on the total amount of business expenses that can be deducted every year.
- Section 179 can be used for new or used assets that is purchased by your business – not for rental or leased property or assets this is received as a present or inheritance.
- Section 179 deductions can best be used for assets that are normally used for business. You should use the assets for business more than half of the time and the amount of your deduction is decreased by the percentage of your personal use.
- This tax deduction is relatively targeted on small and medium-sized businesses; due to the fact the only businesses that meet the requirements for Section 179 are those that spend less than $2 million per year on qualifying business equipment purchases.
- In 2016, Section 179’s $500,000 annual deduction limit and $2 million business investment limit can be listed for inflation. Therefore the amount of deductions will continue to alter to some extent each year in conjunction with overall prices in the economy.
Qualifying Types Of Assets:
Section 179 deductions can be used for physical personal assets purchased for your small business that the Internal Revenue Service (IRS) has determined will last for more than one year. Types of assets consist of business equipments, business vehicles, workstations, heavy machinery, office furniture as well as software.
For more information on section 179 deductions and how they can help, visit the IRS website.