What if businesses could have more or better revenue-producing equipment in service this year for a far lower net investment? Would it change how they look at your business? Bid on new relationships? Grow? In December 2015, Congress brought back the strength of the Section 179 Tax Deduction for businesses. Under the “Protecting Americans from Tax Hikes Act of 2015,” the Section 179 limit is expanded to $500,000 with additional benefits of bonus depreciation for amounts over $500,000. The new law will make this a permanent change, and that was really big news!
A quick primer on Section 179
The Section 179 deduction often allows small businesses (subject to specific limitations) to deduct upfront, rather than depreciate over a number of years, the cost of equipment such as computers, vehicles, manufacturing equipment, farm machinery, office furniture, etc. Additionally, the benefits of bonus depreciation and the incentive to acquire equipment and stay on the cutting edge of technology by continuing to buy equipment are significant.
Each year these assets need to be purchased and put into service by Dec. 31 to qualify for taking the deduction in that tax year. Please also note that businesses exceeding a total of $2 million of purchases in qualifying equipment will have the Section 179 deduction phase out dollar-for-dollar — and completely eliminated above $2.5 million. Additionally, under this law, the Section 179 cap will be indexed to inflation in $10,000 increments in future years. 50% Bonus Depreciation will also apparently be extended under this legislation through 2019 and will be phased down to 40% in 2018 and 30% in 2019.
The important takeaways
The impressive economics of the tax benefit might lead many to rethink equipment life-cycle strategies. Acquiring equipment for a lower net investment might prompt consideration for replacing equipment more frequently, upgrading to more effective technologies, and reducing the operating expenses associated with running equipment longer. By working closely with a tax advisor and an experienced equipment financier, many might be able to put more or better revenue producing equipment in service.
At SLS, we work with professionals every day to maximize equipment purchasing power— putting more revenue-producing equipment in service—with a simple and downright uncomplicated process. If you’d like to discuss how to leverage Section 179 to fuel growth in 2018, give us a call.