I don’t know about you, but 2023 has flown by for me. As the world awakened again, after nervously navigating crisis, we rolled up our shirt sleeves and got to work. Now, as we rapidly approach the end of the year, it’s time once again to think about maximizing tax deductions. Taking advantage of a Section 179 tax deduction to offset the cost of new equipment in your shop would be a great way to finish the year strong, and save some cash.
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 new and used equipment and off-the-shelf 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 the past several years the limit has risen, and 2023 was no exception. The deduction limit has increased to $1,160,000 and the spending cap on equipment purchases has also increased to $4,050,000.
All print shops, schools, offices, any businesses 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 2023. The bonus depreciation is not always offered, but it is this year, and it’s being offered at 80%. Those of you playing along at home may remember it was 100% last year, so it is always a good idea to check with an accountant.
What Qualifies?
The equipment, vehicles or off-the-shelf software purchased during the current tax year must be put into 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 laminator for Christmas cards and your kid’s report cards 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 Lassco Wizer FMMH-3.1 3-Spindle Paper Drill, the numbers work out something like this:
Purchase the incredible Lassco Wizer FMMH-3.1 3-Spindle Hydraulic Paper Drill
Current purchase price = $11,420
First year write off = $11,420 (100% up to $1.16M)
Normal first year depreciation = $0
Cash Savings = $2855 (assuming a 25% tax bracket)
Equipment Cost After Tax = $8565* (assuming 25% tax bracket)
Or, let’s say you are going all-out and want to purchase a Tec Lighting MegaCoat XL82 UV Coater
Current purchase price = $94,300
First Year Write Off = $94,300 (100% up to $1.16M)
Normal First Year Depreciation = $0
Cash Savings = $33,005 (assuming 35% tax bracket)
Equipment Cost After Tax = $61,295* (assuming 35% 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/.
