How Las Vegas Businesses Can Take Advantage of Section 179 Benefits
Section 179 of the U.S. internal revenue code is a tax incentive that allows small businesses to write off the entire purchase price of a qualifying asset in the year it was purchased or financed. This tax write-off applies to depreciable assets, such as equipment, vehicles, and software. Section 179 can help your businesses make significant tax savings and growth.
This tax incentive is designed to help small- to medium-sized businesses ease some of the financial burdens of obtaining equipment or software. If your business uses financing to purchase equipment or software, you can take advantage of Section 179 and make huge tax savings. How can your business take advantage of Section 179?
In this article, we look at how small to medium-sized businesses in Las Vegas can take advantage of Section 179. Read on.
How Section 179 Deduction Works
Before Section 179, a business would have to write off the cost of equipment and software over the normal recovery period. For instance, if an organization acquired a $50,000 piece of equipment that was depreciable over five years, the business could only write off $10,000 during the purchase year, and then $10,000 per year for the next four years.
But all that changed when Section 179 of the U.S. internal revenue code came into effect. Under Section 179, the cost of equipment or software is not to be capitalized or depreciated. This means that small businesses can write off the entire $50,000 the same year they purchased the equipment or piece of software.
How Small and Medium-Sized Businesses Can Benefit from Section 179
In theory, the purpose behind all tax breaks is to boost businesses and stimulate the economy. The Section 179 deduction is no different. Small and medium-sized businesses, in particular, stand to reap numerous benefits from Section 179. How exactly does Section 179 benefit small businesses?
Well, for starters, this write-off significantly reduces the barriers of entry in acquiring equipment for smaller businesses. By taking advantage of Section 179, businesses are able to deduct the full purchase price of qualifying assets before paying off their loans.
As a result, small businesses can start making profits immediately and keep their working capital healthy. Section 179 allows small businesses to purchase all the equipment/software they need by the end of the year and beef up their infrastructure without breaking the bank.
Savings realized from Section 179 deductions can be channelled towards growing other areas of the business as well. In fact, Section 179 is primarily meant as an incentive for small business owners to grow their businesses with the acquisition of new equipment.
How Small Businesses can take Advantage of Section 179
Now that we have a pretty good understanding of what Section 179 is, how it works, and the benefits it can bring to your organization, let’s explore how Las Vegas businesses can take advantage of this tax write-off. Let’s dive right in.
1. Make Sure that your Asset is Eligible for Section 179
To take advantage of Section 179, the first thing you need to do is make sure that your asset is eligible for this tax write-off. To be eligible for Section 179 deduction, the asset in question must be:
- Tangible. Physical assets such as equipment, vehicles, and software are eligible for Section 179. While software is not physical in the traditional sense, accounting rules allow businesses to capitalize software as if it were a tangible asset. Assets that do not exist in physical form, like patents and copyrights, don’t qualify.
- Purchased. For an asset to qualify for Section 179, it has to be purchased. Equipment that is leased by the business is not eligible for the Section 179 tax deduction.
- Used in the active conduct of business. The software or piece of equipment must be used for business purposes more than 50% of the time to qualify for the deduction. If the asset is primarily for personal use and only used occasionally in the business, it doesn’t qualify for Section 179.
- Purchased from an unrelated party. Assets acquired from parents, spouses, siblings, and grandparents are not eligible for Section 179. The same goes for businesses, charitable organizations, and trusts with which you have a relationship.
2. Put the Asset in Service
Your business must start using the equipment or software first before claiming the Section 179 tax deduction. For instance, if you purchase a piece of software or equipment in December 2021 but don’t start using it until 2022, you’d have to wait until 2022 to claim the write-off.
3. Claim the Deduction
The final step is to claim the Section 179 deduction. You can claim this deduction on the first part of IRS Form 4562. Be sure to include a description of the asset, its cost, and the amount you are claiming as a Section 179 deduction in Form 4562.
There are a few limits to the Section 179 deductions. For example, the maximum amount you can deduct is capped and the limit changes every year. For 2021, businesses can deduct up to $1,050,000 of the value of the eligible assets acquired and put in service by December 31. The total amount of the equipment purchased is also limited to a maximum of $2,620,000.
Section 179 is a great way for small to medium-sized businesses to get the IT solutions they need and make significant savings on taxes. When you purchase a piece of equipment, off-the-shelf software, or other qualifying assets for your business, you no longer need to spread the tax deduction over its life.
As a business owner, Section 179 allows you to receive an immediate break on your tax burden. Taking advantage of Section 179 can generate considerable tax relief. Small and medium-sized businesses can use the savings from the tax write-off to support growth in other areas.
Do you want to take your business to the next level? Our IT professionals can help you grow your organization’s tech infrastructure by taking full advantage of Section 179. Contact us for more information about Section 179 and all the benefits it can bring to your organization.