If you purchased or plan to purchase new or used equipment in 2017, you could potentially put thousands of dollars back in your pocket. That’s right, thousands. And if you financed your equipment, it can immediately boost your business’s cash flow.
No, we aren’t talking about the money you’ll save in labor costs due to the increased productivity of using equipment over manual labor. However, equipment purchases often pay for themselves in labor savings- many times within a year of purchase.
We’re talking about taking advantage of a use-it-or-lose-it tax deduction designed to help small businesses grow: Section 179.
Section 179 of the tax code was enacted as an incentive for small businesses to invest in themselves by allowing businesses to deduct the cost of equipment, machinery, and off-the-shelf software purchased during the calendar year from their gross income. Lowering your gross income can save you a large sum of money in taxes. Section 179 is meant to help small businesses grow which in turn helps the economy grow.
How much could you be getting back?
Using the Bulldog WD20 Floor Scrubber as an example:
Cost of Equipment: $6000
Section 179 Deduction: $6000
Cash Savings on your Purchase (assuming a 35% tax bracket): $2100
Lowered Cost of Equipment (after tax savings): $3900
Section 179 is considered a small business tax incentive because there is a spending cap on equipment purchases. If a company spends more than $2 million on equipment, the deduction available to your company begins to be reduced on a dollar for dollar basis. For 2017, there is a Bonus Depreciation of 50% taken after the spending cap of $2 million is reached. Bonus Depreciation is available for new equipment only. In 2017, there is a $500,000 deduction limit.
Does my business qualify?
If your business purchased, leased, and/or financed new or used business equipment totaling less than $2 million in 2017, then it should qualify for Section 179.
What types of equipment are covered?
In addition to floor cleaning equipment, this tax incentive is valid on many other types of equipment. According to Section179.org, the following are generally covered in the Section 179 deduction:
- Equipment (machines, etc) purchased for business use
- Tangible personal property used in business
- Business Vehicles with a gross vehicle weight in excess of 6,000 lbs (Section 179 Vehicle Deductions)
- Computer "Off-the-Shelf" Software
- Office Furniture
- Office Equipment
- Property attached to your building that is not a structural component of the building (i.e.: a printing press, large manufacturing tools and equipment)
- Partial Business Use (equipment that is purchased for business use and personal use: generally, your deduction will be based on the percentage of time you use the equipment for business purposes).
Is used equipment covered?
Yes, used equipment qualifies for Section 179 but not Bonus Depreciation.
What about financed equipment?
The benefits of Section 179 could be even greater for businesses that finance equipment. If you leased your equipment, you can deduct the entire cost of the equipment for the year it was financed. That means if you opted to lease and use a Bulldog Floor Scrubber (used in the example above) in 2017, you can deduct the full $6000 purchase price on your 2017 tax filing. That would give you the $2100 cash savings noted in the example above, assuming a 35% tax bracket. This amount will very likely exceed the amount you have spent in payments on your equipment over the course of the year, thus immediately boosting your cash flow.
You read that right: By taking advantage of the Section 179 deduction, your financed equipment could actually increase your cash flow for the year. Plus, your business gets the added time saving, health, and safety benefits of using the equipment all year long!
For a limited time in 2017, you can also take advantage of the ‘$179 Bonus per $10,000 Financed’ Bonus Cash.
Are there any caveats?
Yes, the equipment must be purchased and in place between January 1, 2017 and December 31, 2017 for it to qualify for a 2017 tax deduction. That means the equipment must be in your facility and up and running by midnight on the December 31 deadline, not purchased, shipped, and on the way to you.
The benefit of Section 179 to small business owners is that they are able to deduct the entire purchase price of equipment bought or financed within the calendar year from their gross income which often leads to thousands saved in taxes for the year. This is one of the few true small business tax incentives that can have a direct positive impact on a business’s bottom line.
Keep your business competitive. Investing in your business leads to growth. Using equipment in your small business has many positive impacts on health, safety, and- with a little extra boost from Section 179- your bottom line.
If you have already purchased or financed equipment in 2017, don’t forget to take advantage of the Section 179 deduction this tax year. If not, there is still time to purchase and receive your equipment before the December 31, 2017 deadline.