Blog/Insight/Save Big on Taxes with Section 179

Save Big on Taxes with Section 179

Insight - 22 Min read

November 16, 2023

As a business owner, especially if you are in the small to mid-sized range, you're constantly on the lookout for ways to optimize your taxes. Section 179 has always been a powerful tool in this regard, and for 2023, the rules have become even more favorable. Read on to find out how you can leverage this to benefit your business.

What is Section 179 in Plain English?

Section 179 is a part of the US Internal Revenue Code that allows businesses to deduct the full purchase price of qualifying equipment in the year it was purchased. This means if you buy a piece of qualifying equipment, you can deduct the entire purchase price from your taxable income for that year. The result? More money that can be reinvested back into your business. AKA -- Ready to buy some equipment?

Who is Eligible for Section 179?

Essentially any business that purchases qualifying equipment is eligible, including small and mid-size businesses, as well as larger corporations. However, the deduction starts to phase out if the total amount of qualifying equipment purchased exceeds $2.8 million.

Updated Maximum Deduction for 2023

New for 2023, the maximum deduction for qualifying assets has been increased to $1,160,000, up from $1,080,000 in 2022. This means businesses can now deduct up to $1.16 million of qualifying equipment from their taxable income. The deduction begins to phase out when the total amount of qualifying equipment purchased exceeds $2.8 million, an increase from the 2022 limit of $2.7 million.

What Equipment Qualifies for Section 179?

The guidelines remain largely unchanged. The equipment must be:

Tangible and primarily used for your business.
Purchased, not leased (though financing is allowed).
In service and used more than 50% for your business during the tax year.
Not acquired from a related party.

How Section 179 Differs From Traditional Depreciation

Traditional depreciation schedules might require you to write off the cost of the equipment over several years. Section 179 allows you to accelerate this into a single year, which can be particularly beneficial if you're looking to offset a profitable year.

How to Claim Section 179

To claim this deduction, fill out IRS Form 4562. This form will help you calculate the maximum deductible amount and should be included with your business tax return.

Additional 2023 Considerations

Equipment must be in use before December 31, 2023: Make sure you start the acquisition process in time to meet this deadline.
Bonus Depreciation: If you purchase equipment over $1,160,000, you may qualify for Bonus Depreciation. This is a complex area, so consult your tax adviser for more details.
Financing and Section 179: New for 2023, you can qualify for a deduction just by financing the equipment. This can make higher-priced items like heavy machinery more accessible.

Conclusion

The Section 179 tax code is an excellent opportunity for business owners to invest in their operations while enjoying significant tax benefits. And with the updated limits for 2023, there's never been a better time to consider making those large equipment purchases. Take advantage of this tax-saving strategy and reinvest in your business with top-of-the-line equipment from Boom & Bucket!