Take Advantage of the IRS 179 Deduction

What is the IRS Section 179 Deduction?

Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year, up to $1,080,000. If your business buys or leases a piece of qualifying equipment, you can deduct the full purchase price from your gross income.  The U.S. government created Section 179 to encourage businesses to spend money on equipment.  

Section 179 is ideal for small and medium businesses looking for a tax advantage in 2022. Please remember, the $1,080,000 limit and 100% Bonus Depreciation are promised through 2022! It is also important to note that the 100% Bonus Depreciation includes used equipment.

How does it work?

When a business purchases qualifying equipment, the depreciation is typically written off a little at a time. For instance, if the equipment cost was $25,000, IRS Section 179 allows for 100% of the equipment cost to be written off in the year it was placed into service. A breakdown of Section 179 with an equipment cost of $1,500,000 - and a 21% corporate tax rate - would be:

• Section 179 Deduction - $1,080,000
• 100% Bonus Depreciation - $420,000
• Total 1st Year Deduction - $1,500,000
• Federal Cash Savings - $315,000
• Lowered Cost of Equipment - $1,185,000

Many businesses prefer to write off the entire equipment purchase price for the year they buy it. If a business can write off the entire amount, they are more likely to add more equipment that year instead of waiting over the next few years. This is the whole purpose of IRS Section 179; it helps motivate the American economy and your business.

For most small businesses (adding total equipment, software, and vehicles totaling less than $1,080,000 in 2022), the entire cost can be written off on the 2023 tax return.

Limitations of IRS Section 179

IRS Section 179 permits qualifying equipment and software purchases, up to $1,080,000, to be fully deducted in year one. This deduction is available for the 2022 tax year via the American Taxpayer Relief Act and can provide tremendous tax savings to participating businesses. Please be cognizant, however, that IRS Section 179 can change year to year. That said, be sure to take advantage of this more-than-generous tax code while it is still available.

Please note that there is a limit on purchased equipment of $2,620,000. Once this limit is exceeded, the 179 deduction is reduced dollar-for-dollar - at $3,670,000 of equipment purchased, the 179 deduction is no longer available.