As we approach the end of the year, it’s almost time to start thinking about maximizing tax deductions for 2021. Using a Section 179 tax deduction to offset the cost of new equipment in your shop would be a great way to maximize your business tax reductions.
What is Section 179?
The U.S. Government likes to give tax incentives to businesses who invest in themselves. Section 179 of the IRS tax code was specifically written for small to medium sized businesses to offset the purchase of equipment and/or software that they use in their business.
The typical tax deduction for purchasing equipment for your business is some portion of the depreciation in the value of the equipment. If a machine costs $50,000, you might expect to deduct $10,000 for the next 5 years to cover the depreciated value of the equipment (just an oversimplified example). Section 179 allows businesses to write off the entire purchase price of qualifying equipment and/or software purchased or leased during the current tax year it was purchased!
Are There Limits?
For 2021, the deduction limit has increased to $1,050,000 and the spending cap on equipment purchases has also increased to $2,620,000.
All print shops that purchase, finance, or lease new or used (hey, it’s new to you) equipment should qualify for the deduction.
In addition to the standard Section 179 deduction, Bonus Depreciation is also in effect for 2021. The bonus depreciation is not always offered, but it is this year, and it’s being offered at 100%.
The equipment, vehicles or off-the-shelf software purchased during the current tax year must be put in use during the current year. Additionally, you must use the purchase for business purposes more than 50% of its usage. You can’t buy a hydraulic paper cutter for your living room and expect it to be deductible. But if you purchase design software for your business that you also used for your personal holiday cards, just figure out the percentage of the usage that is business-oriented.
*Don’t forget: You can deduct used or leased equipment. If it’s new to your shop, it counts as a deduction.
How Much Can You Save?
If you’ve been thinking about a new MBM Aerocut Prime Complete Air Feed Cutter-Slitter-Creaser-Perforator, the numbers work out something like this:
Purchase the incredible MBM Aerocut Prime Complete Air Feed Cutter-Slitter-Creaser-Perforator
Current purchase price = $49,999.000
First year write off = $49,999.000 (100% up to $1M)
Normal first year depreciation = $0
Cash Savings = $12,499.75 (assuming a 25% tax bracket)
Equipment Cost After Tax = $37,499.25 (assuming 25% tax bracket)
Or, let’s say you are going all-out and want to purchase a Tec Lighting MegaCoat 45 45″ UV Coating System
Current purchase price = $98,000.00
First Year Write Off = $98,000.00 (100% up to $1M)
Normal First Year Depreciation = $0
Cash Savings = $24,500.00 (assuming 25% tax bracket)
Equipment Cost After Tax = $73,500.00* (assuming 25% tax bracket)
*Estimates shown. Consult a tax professional for your specific situation.
If you are thinking about a big equipment purchase for your print shop or office, don’t put it off until next year. These tax codes change, so take advantage of these huge savings, compliments of Uncle Sam.
To learn more about Section 179, visit https://www.section179.org/.