13 Oct Defining the Section 179 Tax Deduction for Small Businesses
Section 179 of the Internal Revenue Service’s (IRS) Internal Revenue Code (IRC) allows small businesses to deduct the cost of qualifying equipment, supplies, and machinery from their tax responsibilities. The deduction must be made in the same year that the equipment was purchased or financed. This can mitigate some of the business expenses and financial burdens associated with running a small to medium sized business.
What Equipment Is Deductible Under Section 179?
Any sole proprietor, LLC, partnership, or corporation has the right to expense qualified business equipment in the year that it was purchased. The equipment and software that qualify for a Section 179 deduction include:
- Off the shelf software
- Office equipment purchased for business use, like printers, copiers, and phone systems
- Computers
- Office furniture
- Machinery and work vehicles that cannot be used as a personal vehicle, like forklifts and trailers
- Some improvements to business buildings
- Certain agricultural and storage structures
Limitations for Deductions Under Section 179
Like any other tax code section, Section 179 does have its limitations. The total amount you can deduct is limited by both a dollar amount and business income amount. These limitations apply to the owner, not the business entity:
- For the 2023 tax year, the maximum deduction is $1,160,000.
- Tax deductions for tangible personal property that is used for lodging, like furniture for a rental apartment, is allowable.
- The tax deductions for building improvements have been expanded.
- All deductions are limited to the total amount of taxable income from a business, and unused deductions can be carried over for an unlimited number of years.
- A deduction can be prorated if a business use is less than 100% and disqualified if a business use is 50% or less.
- Vehicle expense deductions have limitations for maximum depreciation.
Claiming a Section 179 Deduction
It’s fairly simple to claim a 179 deduction. If you have purchased qualifying equipment, machinery, or other items, and have used it during this tax year, you must substantiate the purchase through financial records that include the date of purchase, date the equipment was used, and associated costs. The deduction is claimed on Form 4562 under Depreciation and Amortization. It is recommended that you consult a tax professional to ensure you are requesting the deduction correctly.
Benefits of Section 179
Small to medium sized businesses can benefit from the Section 179 tax deduction. This deduction makes it easier to commit to upgrading office equipment and improving the efficiency and productivity of your daily business activities. By deducting the full purchase price of this equipment, you can avoid taking out loans or entering into predatory contracts that might affect your capital or profits.
If you’re interested in upgrading your office equipment by leasing qualifying, tax deductible items, contact us today at Arizona Business Equipment. We specialize in printers, scanners, copiers, and wide format and plotter leases in Southern Arizona. Contact us today to learn more.