In 2017, a tax reform bill was passed to bring significant advantages to small businesses. When it comes to taxes, you never want to leave money on the table so make sure you’re taking advantage of all the tax savings that you can in these last weeks of 2018!
One of the biggest areas to take advantage of is explained in Section 179. Starting this year, Section 179 lets you expense up to $1 million in business property purchases, twice the former limit of $500,000. Previously, spending for business and office equipment, and vehicles would be depreciated over several years, spreading out the tax benefit. Section 179 also now lets you take the tax break for the year the newly acquired property is placed in service. This means you can make purchases as late in the year as December, and as long you can document that it is in regular operation by the end of the month, the tax credit applies.
- Section 179 deductions can be used on both new and used equipment.
- Section 179 cannot generally be used on real estate or land purchases, but this changes somewhat under the new laws. You can now use Section 179 on property used to furnish lodging or in connection with furnishing lodging (such as rental real estate). It also includes improvements to nonresidential real estate assets such as roofs, heating and air conditioning, and alarm systems.
Bonus depreciation limits (also known as first-year bonus depreciation) are also improved under the new law, but for a limited time. Bonus depreciation is similar to Section 179 and allows you to immediately expense capital purchases rather than depreciating them over several years. This new bonus allowance will decline starting in 2022, so the sooner you can take advantage of this the more meaningful it can be for your business.
- Bonus depreciation is typically used on short-lived capital investments (with a 20-year or less useful life) such as machinery, equipment and software.
- Bonus deprecation had been only for purchases of new equipment, but can now be applied to used equipment as long as you place it into service at your business during the tax year.
- The allowable bonus depreciation starts to decline after 2022. It falls to 80 percent in 2023, 60 percent in 2024, 40 percent in 2025 and 20 percent in 2026.
Call Wakefield Equipment if you’re ready to place an order for new or used equipment that can help your business be more profitable while taking advantage of these great tax savings in 2018 and again in 2019!