It’s that time of year, again. Time to think about how to maximize your 2019 business tax deductions. Why not use a Section 179 tax deduction to offset the cost of new equipment for your shop?
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 tax year it was purchased!
Are There Limits?
Similar to 2018, the limit for the total write off remains at $1,000,000. And the limit for the total amount of the equipment purchased is still $2,500,000 for 2019.
All print shops that purchase, finance, or lease new or used (hey, it’s new to you) equipment and off-the-shelf software should qualify for the deduction.
In addition to the standard Section 179 deduction, Bonus Depreciation is also in effect for 2019. The bonus depreciation is not always offered, but it is this year, and it’s being offered at 100%.
What Qualifies?
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.
You can also deduct used or leased equipment! If it’s new to your shop, it counts.
How Much can You Save?
If you’ve been thinking about a new Triumph automatic paper cutter, the numbers work out something like this:
Purchase the incredible Triumph 7260 28″ Programmable Hydraulic Paper Cutter
Current purchase price = $24,999.00
First year write off = $24,999.00 (100% up to $1M)
Normal first year depreciation = $0
Cash savings = $8,749.65 (assuming 35% tax bracket)
Equipment cost after tax = $16,249.35* (assuming 35% 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 = $34,300.00 (assuming 35% tax bracket)
Equipment Cost After Tax = $63,700.00* (assuming 35% tax bracket)
* Estimates shown. Consult a tax professional for your specific scenario.
So, if you were thinking about a big equipment purchase for your print shop or office, don’t put it off until next year. These tax codes change. Take advantage of this huge savings, compliments of Uncle Sam.
If you would like to learn more about Section 179, visit https://www.section179.org/.
