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You, the Tax Man and Section 179

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  • You, the Tax Man and Section 179

    By Noel Ward, Editor@Large

    Owners of small to mid-size businesses—meaning just about any type of print provider—know first-hand how tough it can be to keep a business profitable and moving forward. You’re always looking to get the most favorable returns on every deal and you try not to leave any money on the table. And when it comes to taxes, it’s especially important to know how to work the rules. And right now, one of the best of the bunch is called Section 179. Your tax guy has probably told you about it and it pays to do what you can to take advantage of it.

    Packed into the big tax reform bill that passed late last year, Section 179 offers some significant advantages for commercial printers, quick or franchise shops, and label and package printers. Success in all these businesses increasingly depends on keeping pace with technology because every month seems to bring news of a new press or software that has the potential to change the way your business works. Of course, you are thoughtful and selective in choosing which of the new whizz-bangs to invest in, and that’s a wise approach. But now, as the advances come ever faster and are often based on some proven technology, many new products are well enough developed to be worth consideration—the risks are lower and you don't have to be a pioneer. And, if there is a real tax advantage to be had on top of any advantages the equipment or software brings, the time may be right to pull the trigger.

    The Cliff’s Notes Version
    In recent years, it’s been a challenge to manage your financial resources so you can adopt and implement new technology and have it make sense at tax time. Section 179 makes this easier. Be sure to talk with your tax advisor so you can use this feature to your best advantage.

    With Section 179 you can expense up to $1 million in business property purchases, double the former limit of $500,000. This is especially advantageous when opening your doors to a new Rikondigox 9900 and related equipment. This is a big jump from earlier rules that required spending for business and office equipment, vehicles and the like to be depreciated over several years. Section 179 lets you take the tax break for the year the newly acquired property is placed in service. The only caveat is that the new machine or software must be installed and be operational within this calendar year. So for example, as long you can document that it is in regular operation by the end of December, you are good to go.

    Small Business Friendly
    An interesting part of Section 179 for small business owners is “eligibility phase out.” The short version is that eligibility actually extends up to $2.5 million. However, if you spend more than $2.5 million on business property the $1 million deduction will be reduced on a dollar-for-dollar basis. So in other words, don’t go crazy just because the deduction looks appealing! Still, this can put many businesses in a position get some attractive tax deductions for buying equipment that can help bring in new capabilities and services that can be key differentiators in local markets. For example, equipment and software vendors know about Section 179 and are eager to cut deals. The advantages of Section 179 can make it easier for you to invest in technology that can streamline your operations and let more jobs be produced in a shift.

    And there’s more. For the budget minded, the benefit of Section 179 is not limited to new equipment. This means you can use it for a used press and even that pre-owned delivery truck and fork lift you’ve had your eye on. These can be made part of the deduction too; just watch your total spend. Even better, the deduction can also apply to new and upgraded alarm, heating and air conditioning systems, as well as roof improvements.

    So the thing is, look at all your business needs and think about what will help make your business better technically, competitively, or even just improving your facility. Then make the investments that make sense. And as noted, talk with your tax pro to make sure you do everything right when taking advantage of Section 179.

    But Wait! There’s More!
    Can you stand a bonus from Uncle Sam? A bonus depreciation related to Section 179 lets you immediately expense capital purchases up to $1 million and also deduct greater amounts instead of depreciating them over several years. That starts this year, 2018, and lets you depreciate 100 percent of a qualified asset purchase price over the next five years. This can now be used for both new and used equipment put into service this year. To put this in context, a bonus depreciation is normally used for relatively short-lived capital investments that have a useful life of 20 years or less. This new bonus allowance will decline starting in 2022, so the sooner you can take advantage of this, the more meaningful it can be for your business. When you do the math, (http://www.section179.org/section_179_calculator/ ) you can quickly see that in most cases the First-Year Bonus Depreciation changes your ability to make investments that can help your business. You can find more details and even a tax calculator online at http://www.section179.org

    There’s no doubt that Section 179 can be a game changer for many smaller businesses. Call your tax guy and see how it can work for you.

    • michaelejahn
      #1
      michaelejahn commented
      Editing a comment
      Great article Noel - wanted to add that this can ALSO be used with SOFTWARE expenditures used to run the business.
    Posting comments is disabled.

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