If you know you’re going to be upgrading your computer hardware or software, now may be the time to save a lot of money for your business. Many small business owners are generally familiar with some of the small business tax deductions available to them. However, when it comes to the Section 179 deduction and Bonus Depreciation, many think these are some complicated tax codes.
Luckily, as one of Connecticut’s premier Managed IT Service Providers, we’re experienced with managing equipment procurement for our clients and we’re quite familiar with Section 179.
Simply, What is Section 179?
Section 179 is a section of IRS Tax code that enables businesses to deduct the prices of equipment or software they bought during the year. Essentially, it helps you to write off the total cost of the equipment from your income. The US government enacted Section 179 in 1958 to help companies invest in themselves. While there are some limitations on amounts and types of equipment, the allowances allow small and mid-sized businesses to see significant savings.
Note: It’s important to get started sooner rather than later— with supply chain issues equipment can take some time to procure. In fact, we sometimes see up to 1 month head times for certain types of IT equipment.
Important Facts Businesses Should Know About Section 179
- Qualifications: Any business that buys, finances, or leases new or used business equipment can qualify for Section 179 deductions. Section 179 deductions can be used for certain tangible property that the IRS has determined will last more than one year for your business. The types of qualified business purchases may include:
- Computer Hardware
- Office Equipment
- Computer Software
- Some listed property
- Qualified improvement property
- Timeline: Make sure you buy the equipment within the tax year (between January 1- December 31). Ensure that you also utilize the equipment at least 50% of the time to qualify for the deduction.
- Deduct up to $1,080,000 from your gross income from buying equipment. Note: you can use the entire value of the equipment.
- Factoring in Depreciation Costs: Your business can deduct 100% of the equipment’s 1st year depreciation cost as a bonus depreciation cost. For instance, if you spend $1,500,000 this year on equipment, you can deduct $1,080,000 from your total gross income and then the remaining $420,000 as a bonus depreciation expense.
- Other Considerations: As long as the equipment is new to your business, you can deduct it form your taxes. So, even if you bought lightly used equipment, it could be considered for the deduction.
Start the Process Sooner Than Later: Make Sure You Get Your Benefit This Year
It’s best to start the process sooner than later especially before the year-end rush. The sooner you start, the easier it will be to use the opportunity to keep cash in your business and avoid the chance of equipment not being available when you need it.
Keep in mind: Equipment must be in use before the end of 2022 to qualify. If the equipment you are purchasing takes a few months to deliver, plan ahead—that way you can ensure it is available before the deadline.
Are you ready to start saving money on critical IT equipment?
Every sane person wants to save on taxes and Section 179 enables you to do just that. Instead of paying the taxes back towards the state, you can give your business relief, improve your cybersecurity posture, and improve your business.
If you want to have a more in-depth discussion about how Section 179 can help you to cut costs and save money on critical IT equipment, Contact Kyber Security Today!
*Note: Tax deductions are not the only way to save money on your equipment. You can also save money through other means such as proactive IT management.
*Disclaimer: We are not accountants here at Kyber Security, so be sure to check with your financial professionals to determine what the tax implications of this rule are for your organization.