A SIMPLIFIED VIEW OF THE SECTION 179 DEDUCTION FOR 2016
2016 Deduction Limit = $500,000This deduction is good on new and used equipment which must be financed/purchased and put into service by 12/31/2016.
2016 Spending Cap on equipment purchases = $2,000,000This is the maximum amount that can be spent on equipment before the Section 179 Deduction begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true "small business tax incentive".
Bonus Depreciation: 50% for 2016Bonus Depreciation is generally taken after the Section 179 Spending Cap is reached and is available for new equipment only.
WHAT IT IS
Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment. That means that if you buy a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income.
It's an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves.
Section 179 is one of the few incentives included in stimulus bills that actually helps small businesses and large businesses as well. It provides much-needed tax relief for small businesses - and millions of small businesses are actually taking action and getting real benefits.
SECTION 179 EXAMPLE
|First Year Write-Off||$500,000|
|50% Bonus 1st Year Depreciation:||$75,000|
|Normal 1st Year Depreciation:||$15,000|
|Total 1st Year Deduction:||$590,000|
|($590,000 X 35% Tax Rate)|
Estimated Cost after Tax:
HOW SECTION 179 WORKS
When your business buys certain items of equipment, it typically gets to write them off a little at a time through depreciation. In other words, if your company spends $50,000 on a machine, it gets to write off perhaps $10,000 a year for five years.
This little bit at a time is better than no write-off at all, however, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it.
In fact, if a business could write off the entire amount, they might add more equipment this year instead of waiting over the next few years. That's the whole purpose behind Section 179 - to motivate the American economy and your business to move in a positive direction. For most small businesses, the entire cost can be written-off on the 2016 tax return, up to $500,000.
WHO QUALIFIES FOR SECTION 179?
All businesses that purchase, finance, and/or lease less than $2,000,000 in new or used business equipment during tax year 2016 should qualify for the Section 179 Deduction.