Running a business is an expensive proposition, and it only starts with paying your vendors and employees. The tax codes can be a quagmire of confusion for many business owners, especially when it comes to more complex concepts such as the depreciation laws around technology. The good news is that there have been some meaningful changes around Section 179 for 2018, meaning you may be able to recognize compelling savings if you quickly take action before the end of the year. Here is how you can take advantage of this advanced tax savings while fitting in that technology spend before budgets reset in January.
Upgrade Your Tech, Earn a Tax Credit
While the Internal Revenue Code’s Section 179 sounds complicated, the net effect is quite simple. If you upgrade your technology during the year, you’re eligible to reduce your tax liability for that year by depreciating the equipment — even if you made the purchase on December 31, 2018. This accelerated deduction allows you to write off the entire cost of your technology upgrade, up to 1 million dollars for 2018 on purchases of up to $2.5 million in technology products. This effectively represents a 100% bonus depreciation for both new and used equipment. The government hopes that this extensive benefit will help support the growth and infrastructure investment of businesses throughout the country — which is quite likely considering the full breadth of the discount you can expect to see by taking full advantage of the tax credit.
What Are the Benefits of Accelerated Depreciation?
The accelerated depreciation that is a part of Section 179 of the tax code allows you to see immediate reductions to your tax bill. Applying for the tax credit is relatively straightforward, and there is a high degree of flexibility available in how the credit is utilized throughout the year. The savings can be substantial, especially if you decide to lease or finance your equipment for several years. Your tax professional may be able to help you properly structure a financing agreement that allows you to add software and equipment to your business without a net cash impact for the year.
What Are IRS Section 179 Guidelines for 2018?
The benefits that you can derive from Section 179 will change from year to year, so it’s essential to ensure that you have the most up-to-date information about this exceptional savings opportunity. For 2018, you can find the latest information on Section179.org, including details on timing, calculators to determine how the deduction will impact your organization, answers to frequently asked questions and more. The types of equipment that are included in Section 179 are:
- Construction equipment
- Farm equipment
- Medical equipment
- Printing equipment
- Office supplies
- Office furniture
- Mobile devices
- Other electronics
Of all of the technology solutions that can be covered by Section 179, software is the most popular — but some limitations are involved with receiving your full tax credit on software.
Does IRS Section 179 Have Any Limitations?
Along with the total dollar cap, IRS section 179 does have some limitations. There are a few types of equipment that are excluded, but the tax credit is valid for most types of software and equipment. This credit is simple to use and can provide a significant boost to your bottom line — along with providing your business with some exciting new tech to start the new year. The purchase of software is one of the most popular ways for companies to utilize their Section 179 tax credit, but there are some considerations. The software must be available to the general public and must not be custom-designed for your business. The software must also have a determinable useful life of more than one year, be used for an income-producing activity and be financed with a specific type of qualifying lease or loan. Missing any of these requirements can negate your ability to utilize Section 179.
Currently, the following types of software are not eligible for Section 179 tax credits:
- Websites — although this may change in 2019
- Databases that are not part of the public domain
- Software that is highly customized for your organization
Want to learn more about IRS Section 179 and how your organization can leverage this savings opportunity? The official Section179.org website should be your first stop for any questions, but there is also a great deal of useful information on Investopedia.com. While it may be a little more difficult to wade through, you can always get your information straight from the source at the IRS.gov website, where they detail Section 179 deduction information, special depreciation allowances, MACRS and more. Need assistance working through how Section 179 can benefit your particular organization and the value that you can gain from new technology?
Watch our Section 179 training video.