So, what is Section 179?
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 $10,000 a year for five years as an example. Now, while it's true that this is better than no write-off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it. If a business could write off the entire amount, they might add more equipment this year instead of waiting over the next few years. The whole purpose behind Section 179 is to motivate the American economy to move in a positive direction. For most small businesses, the entire cost can be written off on the 2018 tax return (up to $1,000,000).
Section 179 does come with limits. There are caps to the total amount written off ($1,000,000 for 2018), and limits to the total amount of the equipment purchased ($2,500,000 in 2018). The deduction begins to phase out dollar-for-dollar after $2,500,000 is spent by a given business, so this makes it a true small and medium-sized business deduction.
Who qualifies for Section 179?
All businesses that purchase, finance, and/or lease less than $2,500,000 in new or used business equipment during tax year 2018 should qualify for the Section 179 Deduction. Most tangible goods including software and business use vehicles (restrictions apply) qualify for the Section 179 Deduction. To qualify for the Section 179 Deduction, the equipment and/or software purchased or financed must be placed into service between January 1, 2018 and December 31, 2018. The deduction begins to phase out if more than $2,500,000 of equipment is purchased. The deduction decreases on a dollar for dollar scale after that, making Section 179 a deduction specifically for small and medium-sized businesses.
What is Bonus Depreciation?
Bonus depreciation is offered some years, and some years it isn't. In 2018, it's being offered at 100%. The most important difference is both new and used equipment qualify for the Section 179 Deduction as long as the used equipment is "new to you", while Bonus Depreciation covers new equipment only. Bonus Depreciation is useful to very large businesses spending more than the Section 179 Spending Cap (currently $2,500,000) on new capital equipment. Also, businesses with a net loss are still qualified to deduct some of the cost of new equipment and carry-forward the loss. When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation unless the business had no taxable profit. Unprofitable business is permitted to carry the loss forward to future years.
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