If you’re a small to medium business owner in the U.S., be sure to take a look at this year’s Section 179 tax deduction. When this tax break was introduced in 2018 it was unprecedented; and it’s been extended into 2019. Companies that make capital investment purchases of equipment or software can deduct the full purchase price from their gross income - so long as the purchase is made and the instrument is put to use before December 31, 2019. If you have old instrumentation and are thinking about upgrading, now’s the ideal time to start planning and talk to your accountant (and us) about Section 179.
Although large businesses also benefit from Section 179, the original target of this legislation is for the small to medium business owner. That’s because it applies to purchases up to $2.5M. Another benefit for the small to medium business owner is that it applies to purchases of both new and used equipment. To see a list of the equipment that qualifies for this year’s Section 179 deduction click here. If you have an old instrument that needs replacing, you may be wondering if the purchase of a new instrument to improve your business would qualify. The answer is most likely yes.
How does the 2019 tax break differ from previous years?
In previous years when a business made qualifying equipment purchases the business owner could only deduct the depreciation over a period of years. So if a business owner purchased $100,000 worth of equipment they were only able to deduct the depreciation over a period of five years at $20,000 a year. The biggest difference today is that Section 179 allows for a full deduction in year 1, in most instances. This means that businesses in need of equipment right away can benefit from making the purchase in 2019 instead of waiting to make the purchase next year or the year after. One of the biggest advantages of Section 179 is that it enables business owners in need of updating older equipment to make the purchase immediately to help their business thrive.
Limitations of Section 179
Under this provision business owners can finance, purchase or lease equipment. Purchases cap at $2.5M. The total write-off increased from $50K in 2017 to what is currently $1M. 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 deduction.
Benefits of buying new equipment
When considering the purchase of new equipment as a business owner you need to weigh up the pros and cons. The initial outlay in purchasing new equipment for your business should be offset against the significant value you can quickly derive.
If you have older equipment you risk becoming obsolete in the marketplace and/or irrelevant to your customer’s needs; thus, putting yourself at disadvantage vs your competitors. Out-of-date equipment tends to be inefficient and could result in a significant amount of waste and inefficiency in processes; costing you money. Worse yet, an instrument in constant need of repair can take your business down for days.
The most obvious benefit to the purchase of new equipment is that you're able to keep pace with technological advances. Today’s business technology and manufacturing trends change frequently and fast. Customers are continuously looking for products that meet their specific needs. In the case of quality control, you need to keep up with new specifications and ever-changing regulations. The latest equipment not only provides advances in hardware, software and connectivity to increase productivity; it allows a business to move into new markets.
This year’s tax incentive can change without notice, so it pays to act quickly. The official site of Section 179 provides a calculator to estimate your overall tax saving. As always, it is a good idea to consult your CFO or tax preparer to ensure that your purchase complies with IRS Section 179.
Hitachi High-Tech has been helping businesses for over 40 years with their quality control, safety certification and compliance. We provide solutions backed by a team of experts who will find the best fit for your business. Contact us today to talk about how we can help you benefit from the Section 179 tax break.
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