How to Use Section 179 Qualified Financing


Section 179 provides a great opportunity to save money when you purchase a new spray rig and if you choose to finance your equipment, you may actually end up with more cash at the end of the year than you would have if you never purchased the equipment in the first place. How does this work? Section 179 allows you to deduct the full amount of the equipment in the current year, without paying the full amount for the equipment in the same year.

 

In the previous blog post, we met Craig, a drywall contractor that is thinking about purchasing a new spray rig. We calculated Craig’s tax savings when purchasing a $25,000 spray rig to be $8,750. If you want to see how we arrived at that number, click here to read the previous post.

 

Craig is excited about the idea of spending that money on equipment instead of on taxes, but now his biggest problem is that he doesn’t have the cash to pay for the equipment outright. The good news is that this is not actually a problem at all. In fact, taking advantage of Section 179 with financed equipment may save him more money in taxes in the first year than he would have to put into the equipment. Here’s how:

 

Example

Craig makes a deal with an equipment financing company. He has good credit and his terms end up being 0% down with monthly payments of $416. For the sake of the example, lets say Craig makes payments in every month of the first year. 12 payments at $416 per payment is $4,992 in the first year.

 

Below is the calculation we did in the previous post with this new financing deal added in:

 

Spray rig purchase: $25,000

Year 1 Write-Off (Section 179): $25,000

Normal Year 1 Depreciation: $0

Total First Year Depreciation: $25,000

Tax Savings (assuming 35% tax rate): $8,750

Payments made on loan: $4,992

Net Additional Cash in Bank After Year 1: $3,758

 

As you can see, Craig ends up with $3,758 more cash in the bank at the end of Year 1 than he would have if you never purchased the equipment at all. Instead of paying $8,750 in taxes, he paid $4,992 towards new equipment. In addition, he has $3,758 in the bank that he can use to grow his business even more.

 

If you are considering purchasing new equipment, now might be the time to give us a call to see how you can save the most money. We frequently work with financing companies that can help you take full advantage of Section 179 and improve your cash flow this year.

 

Call us at 877-833-4342 or text 253-833-4342 for more info. We are more than happy to provide a quote for a spray rig to see if it makes sense for your business!