What would October be without our annual reminder that you can save a ton of money on equipment purchases by taking advantage of Section 179 of the tax code. In a nutshell, Section 179 is a business deduction where you can deduct the entire price of new (and new-to-you) equipment and software that you purchase and install before the end of the year. If you are thinking about adding a new machine, or replacing an old one, do it now and your bank account will cheer when April rolls around.
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 2024 was no exception. The deduction limit has increased to $1,220,000 and the spending cap on equipment purchases was decreased a bit to $3,050,000.
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 2024. The bonus depreciation is not always offered, but it is this year, and it’s being offered at 60%. Those of you playing along at home may remember it was 80% last year, so it is always a good idea to check with an accountant.
Why Should I Buy Now?
Section 179 allowances fluctuate. There is no guarantee it will be the same next year, or even if it will be offered. Some of the 2017 tax cuts expire next year, unless Congress decides to extend them. We don’t know how Section 179 may be affected. Now is the time to ensure you take advantage of the current dedution rates.
What Qualifies?
The equipment, vehicles or off-the-shelf software purchased during the current tax year must be put into use before the end of the year. Additionally, you must use the purchase for business purposes more than 50% of its usage. A paper cutter for your scrapbooking is not deductible, but a refrigerator for the company breakroom is. If you purchase design software for your business that you also use 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 = $11,650
First year write off = $11,650 (100% up to $1.22M)
Normal first year depreciation = $0
Cash Savings = $2912.50 (assuming a 25% tax bracket)
Equipment Cost After Tax = $8737.50* (assuming 25% tax bracket)
Or, let’s say you are going all-out and want to purchase an MBM AeroDieCut
Current purchase price = $74,998
First Year Write Off = $74,998 (100% up to $1.22M)
Normal First Year Depreciation = $0
Cash Savings = $18,749.50 (assuming 25% tax bracket)
Equipment Cost After Tax = $56,248.50* (assuming 25% tax bracket)
*Estimates shown. Consult a tax professional for your specific situation.
If you are thinking about purchasing any equipment or software 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/.
