Section 179 & American Surplus: Tax Benefits to Save Your Business Money
What Is Section 179?
Section 179 of the IRS tax code allows business to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year, meaning that when you buy new or used warehouse equipment at American Surplus, you can deduct the full purchase price from your gross income. This incentive is included within the IRS tax code to encourage businesses to invest in themselves by purchasing high-quality equipment.
Previously, Section 179 was often referred to as the "SUV Tax Loophole" or the "Hummer Deduction" because many business used Section 179 to write-off qualifying vehicles that many percieved to be frivilous, non-business expenses. At the time, Section 179 had far fewer restrictions on what counted as a qualifying purchase. Since then, Section 179 has been reigned in with a stronger focus on business-related equipment.
Despite tightening of regulations, Section 179 is more beneficial to small businesses across America than ever before. Today, Section 179 stands out as one of the few government incentives available to small businesses, and has been protected in many of the recent Stimulus Acts and Congressional Tax Bills.
How Does Section 179 Work?
Before Section 179, businesses purchasing qualifying equipment would typically write it off a piece be piece over years through depreciation. In other words, if your company spends $50,000 on a machine, it could write off (theoretically) $10,000 annually over 5 years.
While this is better than no write-off at all, it's often in a business' best interest to write off the entire equipment purchase price in the year it was purchased.In short, Section 179 allows your business to write off the entire purchase price of qualifying equipment for the current tax year.
This makes a huge difference for small businesses and for the economy at large. Businesses have used Section 179 to purchase needed equipment immediately instead of waiting for when it's most adventageous from a tax perspective. For most small businesses, the entire cost of qualifying equipment can be written off on the 2020 tax return up to $1,040,000.
Does Section 179 Have Limitations?
Section 179 does have it's limits -- There are caps to the total amount written off ($1,040,000 in 2020), and limits to the total amount of the equipment purchased ($2,590,000 in 2020). The deduction begins to phase out on a dollar-for-dollar basis after $2,590,000 is spent by a given business (meaning the entire deduction goes away once $3,630,000 in purchases is reached). This cap is in place to ensure this tax advantage is utilized only by small and medium-sized businesses.
Does My Business Qualify for Section 179?
Any business that purchases, finances, and/or leases less than $3,630,000 worth of new or used business equipment during the 2020 tax year should qualify for the Section 179 deduction. Business that purchase/finance less than $2,590,000 worth of equipment in the year will receive the full deduction, with the deduction phasing out dollar-for-dollar starting at $2,590,001.
Most tangible goods used by American business (and American Surplus' entire inventory of new and used warehouse equipment) qualify for the Section 179 Deduction. For a complete list of qualifying equipment, visit Section179.org's detailed list. To qualify for the deduction, all equipment purchased or financed must be placed into service between January 1st, 2020 and December 31st, 2020.
What's the Difference Between Section 179 and Bonus Depreciation?
Bonus Depreciation is offered some years, and some years it isn't. For 2020, Bonus Depreciation is being offered at 100%.
A key difference is that both new and used equipment have always qualify for Section 179, whereas Bonus Depreciation has only covered new equipment until a recent revision to tax laws.
Bonus Depreciation is most useful for large businesses that spend more than the Section 179 caps on equipment each year. Businesses with a net loss are also still qualified to deduct some of the cost of new equipment and carry-forward the loss.
When applying these provisions, businesses generally apply Section 179 benefits first followed by Bonus Depreciation. If the business has no taxable profit, then the unprofitable business is allowed to carry the loss forward to future years instead.
How Does the "More Than 50% Business Use" Requirement Affect My Deduction?
The equipment purchased under Section 179 must be used for business purposes more than 50% of the time in order to qualify for the Section 179 deduction. To calculate usage, multiply the cost of the equipment purchased by the percentage of business-use to arrive at the amount eligable for deduction under Section 179. For the most part, equipment purchased at American Surplus such as pallet racking, mezzanines, conveyor, and pick modules are permanently or semi-permanently installed for 100% business use, meaning this provision likely doesn't affect the deduction you can take on equipment purchased at ASI.
Have You Reached Your Cap Yet?
It doesn't make sense to leave money on the table! Taking full advantage of the tax benefits available to your business not only helps you stretch your dollar further in the short-term, purchasing qualified equipment for your business maximizes efficiency, storage capacity, throughput, and profits in the long term as well. Our sales team is only a phone call away at (800) 876-3736; They can help guide you through the process of optimizing your facility's storage and picking systems as well as inform you about the variety of tax benefits purchasing from American Surplus can provide.