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, we’re here to walk you through what each deduction is, and what they can do for your business.

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.

Section 179 Tax Deduction Explained

Section 179 is a great incentive for businesses to purchase, finance, or lease equipment by allowing them to deduct up to $1,050, 000 per year in qualifying business equipment purchases from their taxable income.

While there are some limitations on amounts and types of equipment, the allowances allow small and mid-sized businesses to see significant savings.

The limitations on the deduction for your tax year include:

  • The maximum amount that can be deducted is $1,050,000
  • The maximum amount of equipment that can be purchased (and take the full deduction) is $2,620,000
  • Equipment must be placed into service no later than December 31, 2022
  • If total equipment purchases exceed $2,620,000 the Section 179 deduction decreases dollar for dollar, reaching zero once $3,670,000 of equipment is purchased and or financed

Qualifying Types of Property

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

Bonus Depreciation Explained

Bonus depreciation is a tax incentive that allows small- to mid-sized businesses to take a first-year deduction on purchases of qualified business property in addition to other depreciation. In the year qualified property is purchased and put into use, a business is allowed to deduct 100% of the cost of the property in addition to other depreciation that is always available.

Businesses can take both Section 179 and Bonus Depreciation allowances; however, Section 179 must be applied first, and any amount over the $1,050,000 limit to Section 179 may then be taken in bonus depreciation.

Qualified property (or assets) includes:

  • Property depreciated under the Modified Accelerated Cost Recovery System (MACRS) that has a recovery period of 20 years or less
  • Computer software
  • Water utility property
  • Qualified film or television productions
  • Qualified live theatrical productions
  • Specified plants
  • Qualified improvement property
  • Some listed property

As a partner in IT and cybersecurity, we believe it’s important to let you know about the ways in which your organization can benefit from programs and specials to achieve outstanding IT projects. The Section 179 and bonus depreciation tax breaks exemplify how you can help your bottom line while improving your IT infrastructure and security.