Can you use Section 179 deductions on your printing equipment?
As the end of the year approaches and you begin getting your accounting and tax prep work underway, we wanted to discuss a beneficial tool for businesses to save money on their tax bills when purchasing equipment or software- Section 179. This tax rule allows companies to deduct equipment costs from their gross income rather than depreciate it over time, making it an attractive tool for businesses since they can get tax breaks – which they usually wouldn’t be allowed – out of the gate. However, what equipment qualifies for the deduction? In this article, we will discuss the specifics, qualifications, and steps you can take to capture the most for your business.
What is Section 179?
Section 179, also known as the Special First-Year Depreciation Rule, allows you to deduct the full purchase price of qualifying business equipment or software purchased or financed during the tax year. Although the deduction limits are subject to change each year, the tax savings from using Section 179 can be substantial — up to 100% of your investment. In addition, the IRS allows you to carry forward unused Section 179 deductions from previous years, so it’s important to take advantage of this opportunity every year you can. This tax law aimed at small to mid-size businesses is only available to companies that use the cash method of accounting, which means they report income when it’s received and deduct expenses when they’re paid. For the tax year beginning in 2022, the deduction limit has been raised to $1,080,000 with a maximum limit of $2,700,000.
Why take the deduction in the first year?
Why take the deduction in the first year instead of over several years? Here are a few simple reasons why you would want to take advantage of this tax law:
- Max immediate deduction now
By taking advantage of Section 179 deductions now, you can benefit immediately rather than waiting five years. For example, this directly reduces your taxable income by $100,000 if you bought $100,000 worth of equipment.
- Combine with bonus depreciation
You may not know this, but you can use Section 179 and bonus depreciation in the same year. Bonus depreciation has no limit, and any unused deduction will forward to the following year.
Most businesses will have qualifying purchases each year. The equipment can be new or used as long as the business owner hasn’t previously owned it. Examples of qualifying purchases are:
- Copiers or Multifunction Printers
- Print Management Software
- Document Management Systems
- VOIP Phone & Network Equipment
It’s important to remember that qualifying property must be used more than 50 percent of the time for business activities. In addition, software under Section 179 must be:
- Used for income-producing activities
- Have a determinable useful life
- Be expected to last more than one year
- Readily available for purchase by the general public
- Subject to a non-exclusive license (ex: off-the-shelf)
What about equipment leasing?
The most significant advantage of leasing equipment with Section 179 is that it enables you to deduct the full purchase of the business property without paying the entire purchase amount this year. The leased equipment qualifies if it is put into use in the same year the deduction is claimed. Remember that to take the tax deduction; your lease must be classified as a capital lease (AKA $1 buyout lease) and not a fair market value lease. Review your leasing contracts to confirm the status. Make sure you use Form 4562 to report the details required for the deduction. When completing this form, you will need to provide information regarding business property acquired and put into use throughout the tax year.
Now that you know your options to reduce your tax liability under Section 179, here are some steps to capitalize on the new knowledge.
- Consider purchases before the end of your tax year
The tax year ends on December 31st, and you still have time to leverage the tax deduction on any qualified purchases through the end of the year. First, review your current business needs and if your business could benefit from new equipment or software.
- Check if your account systems are classifying correctly
Don’t wait until the last minute to make sure you are classifying your qualified property correctly. Speak with your accounting staff to confirm how you are tracking these types of transactions.
- Speak with your tax professional
If you hope to take advantage of Section 179 deductions, you should consult a tax professional before buying business equipment or software. Section 179 tax write-offs vary with each business situation, and the rules change often. Your tax professional can also advise you of any additional deductions and depreciation savings available to your business.
- Talk to us to confirm your equipment qualifies
Have you purchased equipment or solutions from us that qualifies for Section 179? Whether it’s a printing device or document management software, we can provide any guidance you may need to verify any qualified property purchased from us. Reach out to your customer support representative at firstname.lastname@example.org.
The bottom line is that Section 179 is a valuable tool for business owners to save on their taxes. In many cases, businesses can benefit significantly from itemizing their deductions in the first year. In addition, with this deduction, companies have more money to reinvest in other aspects of their business and help contribute to overall success.