What is the Section 179 Deduction?

What is the Section 179 Deduction?

By Tim Frye

As the years go by, it seems small businesses are getting their pockets squeezed harder than the guy who owes Uncle Pauly $30 large from money lining the Celtics a few years back and not making good on his debt. And with Obama in office, the invasive procedures of the alphabet soup companies like the IRS and EPA have expanded and grown more unrelenting than ever. The government stated clearly that they would leave those taxpayers making under $250,000 alone. For the most part, they have remained true to their word. Now, there of course is always another side to this coin. Those individuals and businesses that are reporting income in excess of this threshold are getting slapped around pretty good. Consequently, as the tax rates for income and investments that land beyond the designation climb higher, the deductions accessible to the affected taxpayer are more valuable than ever. The Section 179 is one of these vital deductions that has been revised recently to assist small businesses. Section 179 of the tax code permits businesses to deduct the entire purchase price of qualifying equipment and/or software purchased during the year. This article will seek to articulate the specifics of the Section 179 deduction.


Section 179

The Section 179 deduction will allow business owners to deduct the full cost of their qualifying asset purchases. The regular depreciation method consists of taking a small deduction, year after year, until the full amount is exasperated. This helps small business by encouraging them to continue buying assets year after year, since they can utilize the huge write off that the Section 179 offers. This galvanizes small businesses and is one of the few remaining benefits the government offers to them.

Qualifying for Section 179

Any business that purchases, finances, or leases new or used business equipment during 2013 is permitted to elect the Section 179 deduction. In the circumstance in which the business in question is reporting zero taxable income, they can elect the usage of the 50% Bonus Depreciation and carry this forward to a future year when they back in the black.

The majority of tangible goods fit the qualification module for the deduction. Remember to note that to in order for it to qualify for the Section 179, the equipment or software in question must be purchased or financed and put into service between the applicable dates of January 1st,2013 and December 31st, 2013.

Section 179 vs Bonus Depreciation

The major disparity in the definitions between the Section 179 and Bonus Depreciation deductions is that on the Section 179 the taxpayer can deduct equipment that is new or used (assuming it’s new to taxpayer). With Bonus Depreciation the asset must be brand spanking new. The Bonus Depreciation deduction is very potent to the big boys who are dropping more than $2 Million on new capital equipment for 2013. In this occurrence the Bonus Depreciation is more advantageous because Section 179 will start to phase out once the asset purchases for the year reach beyond the $2 Million threshold. The procedure for taking these deductions in succession is that the Section 179 is taken first, followed closely behind by Bonus Depreciation.

Section 179 provides a tremendous amount of value and incentive for small business to grow with rapidity. The opportunity to write off these large purchases can spur the company’s output by limited it’s tax liability and leaving room in the bank for future purchases of heavy equipment.