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  • Alex Jaacovi

Sec 179 Explained

Updated: Apr 21, 2023

Section 179 of the Internal Revenue Code is a tax deduction that allows small businesses to expense the full cost of certain qualifying equipment and assets in the year they are placed in service, rather than depreciating them over a number of years. This tax deduction can be a valuable tool for small business owners looking to save money on their taxes.


Under Section 179, small businesses can deduct up to a certain amount of the cost of qualifying equipment and assets in the year they are placed in service. For tax year 2022, the maximum deduction is $1,050,000, and the deduction begins to phase out once a business purchases more than $2,620,000 of qualifying equipment and assets. These limits are adjusted for inflation each year.


Qualifying equipment and assets include tangible personal property, such as machinery, equipment, furniture, and computers, as well as off-the-shelf software. Certain real property, such as qualified leasehold improvements, restaurant property, and retail property, may also be eligible for the Section 179 deduction.


To be eligible for the Section 179 deduction, the equipment or asset must be used for business purposes more than 50% of the time. In addition, the property must be new or used, but it must be new to the business that is claiming the deduction. The property must also be purchased or financed and placed in service during the tax year in which the deduction is being claimed.


Small business owners can use the Section 179 deduction to reduce their taxable income and save money on their taxes. By expensing the cost of qualifying equipment and assets in the year they are placed in service, small businesses can reduce their current year tax liability, which can improve cash flow and help to grow the business.


For example, let's say a small business purchases a new computer system for $10,000 in January 2022. Under Section 179, the business can deduct the full $10,000 in the year the equipment is placed in service, rather than depreciating it over a number of years. Assuming a 21% tax rate, this would result in a tax savings of $2,100.


Small business owners should keep in mind that the Section 179 deduction cannot create a tax loss. In other words, the deduction cannot be used to reduce taxable income below zero. However, any unused deduction can be carried forward to future tax years.


In order to take advantage of the Section 179 deduction, small business owners should work with their tax professional and/or accountant to determine their eligibility and to properly claim the deduction on their tax return. In addition, small businesses should keep accurate records of their equipment and asset purchases, including the date of purchase, the cost, and the percentage of business use.


In conclusion, the Section 179 deduction can be a valuable tax planning tool for small business owners. By expensing the cost of qualifying equipment and assets in the year they are placed in service, small businesses can reduce their current year tax liability, improve cash flow, and help to grow their businesses. Small business owners should consult with their tax professional and/or accountant to determine their eligibility and to properly claim the deduction on their tax return

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