Understanding Section 179 – Common Questions

What is Section 179?

IRS tax code allowing businesses to deduct the full purchase price of qualifying equipment and software purchased or financed this year. That means you deduct the Full Purchase Price from your gross income. It’s an incentive created by the Government to encourage businesses to buy equipment and invest in themselves. Section 179 is one of the few incentives that truly helps small businesses. Although large businesses also benefit the original target was much needed tax relief for small businesses – and millions of small businesses take advantage of it each year.

Essentially it works like this:

When your business buys certain equipment it typically writes off a 10% to 25% each year through depreciation. Let’s say for example your company spent $10,000 purchasing a machine, you might write off $2,000 a year for five years.  It’s true this is better than no write-off at all, but most business owners would prefer to write off the entire $10,000 purchase cost this year.  If businesses could write off the entire amount they might add more equipment this year instead of waiting over the next few years. That’s the whole purpose behind Section 179 – to motivate the American economy (and your business) to invest and grow.

Who Qualifies for Section 179?

All businesses that purchase outright or lease purchase less than $2,000,000 in new or used business equipment during tax year 2016 should qualify for the Section 179 Deduction.

What Equipment Qualifies in 2016?

Most tangible business equipment qualifies including “off the shelf” software and business-use vehicles. (essentially anything you purchase from Monroe Infrared will qualify). Basic guidelines on what property is covered under the Section 179 tax code include:

-Equipment (machines, etc) purchased for business use

-Tangible personal property used in business

-Business Vehicles with a GVW exceeding 6,000 lbs

-Computers and “Off the shelf” software

-Office Furniture and Office Equipment

How Much Can I Save on My 2016 Taxes?

For example, your business is profitable this year and you purchase an infrared camera for $5000 before Dec 31st.  Most file both IRS and State income tax returns.  Section 179 allows you to deduct $5000 your business income. At 35% average combined federal and state taxes you save $1750 reducing the real purchase cost for the infrared camera to $3250)

Section 179 with Lease Purchases

Your company can lease equipment and take full advantage of the Section 179 deduction as well. In fact, leasing equipment or software with the Section 179 deduction is a preferred financial strategy for many businesses as it can significantly help with both cash flow and profitability.

Advantages of Lease Financing and Section 179

The obvious advantage to lease financing equipment purchases and Section 179 is that you can deduct the full amount of the equipment or software without paying the full amount this year. The amount you save in taxes may actually exceed your payments, making this a very bottom-line friendly deduction.

When Do I Have to Do This By?

Section 179 for 2016 expires at midnight, 12/31/2016. To deduct the full price of your equipment from your 2016 taxes it must be purchased and put into service by then. (Note: high volume equipment purchases every Nov & Dec often create backorder issues. Monroe Infrared will provide a Paid Invoice dated prior to Dec 31, 2016 to ensure you can take advantage of Section 179).

Questions?  Give us a call.  Ready to purchase?  Check out details here on our website and give us a call or email. We have year end package specials which can include training.

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