Like everything in the tax world, US Internal Revenue Code’s Section 179, which allows companies to deduct up to $25,000 worth of qualifying equipment purchased in 2015, contains multiple shades of black, white, and gray.
This accelerated depreciation deduction was implemented in 2008 specifically to provide much-needed tax relief for small businesses and encourage them to invest in their future. Typically, depreciation deductions are spread out over time, but Section 179 allows business owners to accelerate that advantage by writing off the entire cost of a purchase the year that they buy it.
In theory, Section 179 is actually quite straightforward. Nearly everything from computers to off-the-shelf software to certain business vehicles to office furniture qualifies. Some limits do exist, however. The total amount that can be written off is equal to the amount that you spend on qualified business purchases. Spend $25,000 and you can deduct $25,000 — only spend $10,000 and you can only deduct $10,000, though.
Also, if the total cost of equipment purchased exceeds $2,000,000, the deduction is reduced dollar for dollar. In addition, a business must show sufficient business profit to take advantage of Section 179. Only have $5,000 in profit? The maximum you can then deduct is only $5,000.
Minor exemptions do apply to software under Section 179. Generally, qualifying purchases must be of the “off the shelf” or “out of the box” variety — custom code software, for instance, doesn’t apply. The other requirements are that the software is either financed via specified leases or purchased outright by you; that the software must be used in your business for income-producing activity; that the software must have a determinable useful life; and that the software must be available for purchase and subject to a non-exclusive license.
Another major Section 179 perk is the leasing options that allow users to acquire up to $25,000 worth of equipment without actually spending that much this year. With a properly structured capital lease the amount you can deduct may actually exceed what you have to pay up front. Tread lightly, though, as many small-business leasing firms are notorious for applying outrageous terms to loans. CMIT Solutions can help you navigate this tricky landscape, however, by leveraging the trusted relationship we maintain with our leasing partner.
If, after consulting with your professional tax advisor, you make Section 179-eligible purchases, actually taking the deduction on your 2015 taxes is relatively easy. You or your tax preparer must fill out IRS Form 4562, the deduction must be taken on an item-by-item basis, and complete records of your business equipment purchasing or leasing must be maintained.
So if you’re considering a hardware or software upgrade, now is the time to take action — with the guidance of a trusted IT provider and a professional tax advisor, of course*. If you want to deduct up to $25,000 for your 2015 taxes and invest in the future of your business, any qualifying purchases must be made before December 31st.
If this sounds like a win-win situation to you, contact CMIT Solutions today to find out more. We can help you map out the hardware and software purchases that are right for you and then deploy that technology to immediately improve office productivity and efficiency.
*Information dispensed in this newsletter is for illustrative purposes only and accuracy is not guaranteed. CMIT Solutions and its owners, affiliates, and partners are not tax advisors, and no communications are intended to offer any tax advice. Please consult with qualified tax professionals concerning your situation.