If you are a small to medium business owner in the U.S., there has never been a more enticing IRS incentive available than this year’s Section 179 deduction. This 2018 U.S. tax initiative is available to companies that plan to make capital investment purchases to grow their business or improve processes. These purchases can be for either qualifying equipment or software. The main benefit of this year’s Section 179 deduction is that if you buy or lease qualifying equipment during the tax year you can deduct the full purchase price from your gross income provided the purchase is made by December 31, 2018. Although large businesses also benefit from Section 179, the original target of this legislation was much needed tax relief for the small to medium business. This is because it only applies for purchases that are capped at $2.5M. Another benefit for small to medium business owners is that it can be applied to purchases of either new or used equipment. To see a list of the equipment that qualifies for this year’s Section 179 deduction click here. As a Hitachi High-Tech potential customer, you may be wondering if the purchase of a new instrument to improve your business would qualify. The answer is most likely yes.
In previous years when a business made qualifying equipment purchases the business owner was only permitted to deduct the depreciation over a period of years. As an example, if a business owner purchased $100,000 worth of equipment they were only able to deduct the depreciation over a period of say 5 years at $20,000 a year. The biggest difference is that the 2018 Section 179 allows for a full deduction in year 1 in most cases. This also means that businesses which are in need of equipment right now can really benefit from making the purchase in 2018 instead of waiting to make the purchase next year or the year after. This is seen as one of the greatest benefits designed to enable businesses to use Section 179 to purchase needed equipment right away.
Under this tax provision business owners can finance, purchase or lease the equipment. Purchases totals cap at $2.5M. The total write off has increased from $50K in 2017 to $1M in 2018. Plus Section 179 can be applied to equipment that is either new or used. One of the biggest stipulations is that a business must use the equipment or software more than 50% of the time to qualify for the Section 179 Deduction.
When considering the purchase of new equipment as a business owner you need to weigh the pros against the cons. Purchasing new equipment for your business needs can provide plenty of value. If your equipment is worthy for consideration of an upgrade the benefits of buying new equipment could prove to be significant.
Technology and manufacturing trends can change monthly. The most obvious benefit of buying new equipment or technology is that you're keeping pace with technological change. Customers are continuously looking for equipment to meet their needs, or in the case of quality control, to keep up with new specifications and regulations. Also, if you have older equipment you might risk becoming irrelevant to your customers. Out-of-date equipment tends to be inefficient, and could result in a significant amount in a waste of time in business process that could be costing you money. Worse yet, an instrument in constant need of repair can take your business down for days at a time.
It is important to remember that Section 179 can change without notice. This is why it is important to act today or certainly before December 31, 2018. The official website of Section 179 provides a calculator to estimate your overall tax saving. As always, it is a good idea if you are unsure whether or not your equipment could be considered to consult your tax preparer just to ensure that your purchase complies with IRS Section 179.