What is Section 179?


Section 179 sounds like it is either a complicated tax code or a spot in the desert that the government uses to hide extraterrestrial activity from us. But the truth is, Section 179 is a simple incentive program that the IRS started to encourage small businesses to invest in equipment.

 

Without Section 179 in place, a business would depreciate the equipment it purchases over a period of years. For example, after buying a $25,000 piece of equipment, you may get to write off $5,000 per year for 5 years (these numbers are just an example). While you still reap some benefits of the tax write-off using this method, most businesses prefer to write off as much as possible in the current year, which is where Section 179 comes in.


Section 179 allows businesses to write off the entire amount of purchased equipment in the current year (up to $1 million in 2018). It’s one of the only tax benefits available for small businesses and its intention is to incentivize businesses just like yours to invest in equipment so your business can grow. In the example above with $25,000 of purchased equipment, instead of writing off $5,000 over a period of 5 years, you could write off the full $25,000 in Year 1. The big advantage is the drastic reduction in tax liability at the end of the year. Let’s break it down in a little more detail.


Example

Craig is a drywall contractor who has been spraying for quite some time now. His business has been growing lately and he is on the fence about purchasing a new spray rig to add to his fleet. Craig hears about Section 179 and is curious how it could benefit him. Let’s take a look at the impact of Section 179 on Craig’s potential purchase:


Spray rig purchase: $25,000

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

Normal Year 1 Depreciation: $0

Total First Year Depreciation: $25,000

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

Actual equipment cost after Tax: $16,250

 

Craig is able to write off the full $25,000 spray rig purchase, meaning his taxable income is reduced by $25,000. Assuming Craig has a tax rate of 35 percent, this means that he will be paying $8,750 less in taxes this year. Instead, that money is invested in the spray equipment.


Think of it this way: You can send $8,750 to the IRS in the form of tax, or you can drop that $8,750 into equipment. If your business is growing or your current equipment is slowing you down, it may make sense to give us a call to discuss what options we have for getting a new rig into your hands.


As always, we are available by phone at 877-833-4342 or you can text 253-833-4342.

 


It is also a good idea to consult with your accountant to work out the best strategy for your business.


For more information about Section 179, visit www.section179.org. They also have a handy tax deduction calculator. After you receive a quote from us, you can drop the quoted price into the calculator to see what your exact Lowered Cost of Equipment will be after the tax savings.