No one likes paying taxes. If you’re a small business owner, you may find the prospect even more daunting than filling out your personal tax return – IRS tax codes can seem complex and unforgiving, set up to confuse you.
It’s critical to understand how to use sections of the IRS tax code to your advantage, however, and there’s one section in particular that benefits northwestern Indiana businesses in a big way: Section 179.
While many aspects of paying taxes can seem intimidating, as a small business, Section 179 is your friend. There are multiple ways it can help your business save money in one particular area: investing in IT equipment.
Let’s take a closer look at how Section 179 benefits northwestern Indiana businesses, and what you as a small business owner need to know about it.
Please note: this blog post and the accompanying video do not intend to offer any tax advice. It is intended to provide background information on Section 179. For tax guidance, consult a CPA or tax professional.
Section 179 is a section of the IRS tax code. According to Section179.org, it enables businesses to “deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year.”
For any equipment that qualifies, this section allows you to deduct the entire price of the equipment from your gross income. While it’s not specifically limited to IT equipment, that’s what we’ll focus on in this blog post.
Prior to Section 179’s implementation, businesses would write off fractions of a larger purchase price over a longer period. While this was certainly preferable to not writing anything off of your tax return at all, it forced business owners to have to wait to benefit from writing off a large purchase. Now, they can deduct all of the major purchase amount at one time.
If you’re wondering whether you qualify for Section 179, here’s how you’ll know: if you purchased, leased, or financed any “business equipment” (used or new) and that equipment was used by your company between January 1 and December 31 of this year, you’re eligible. Section179.org offers a full list of qualifying equipment, though most items commonly used by businesses in this country will qualify.
For any non-IT (or even for IT) equipment, check with a tax pro to be sure – for example, there are several restrictions on vehicles you’ll want to be aware of.
You’ll also want to take note of the fact that any type of equipment must have been used for business purposes greater than 50% of the time to be eligible. To calculate how much is eligible, take the percentage of time you used it (again, no less than 50%) and multiply that figure by the price of the equipment in question to arrive at the amount.
While you should be aware of Section 179 and how it can help, it also has limits you’ll want to understand.
If you’re a small business looking to take advantage of Section 179, it’s important to understand its limitations. For 2021, you can only write off $1,050,000 against $2,620,000 spent on equipment. After you reach the $2.62 million mark, the deduction “phases out on a dollar-for-dollar basis,” meaning it will dissipate once you’ve amassed $3,670,000 in purchases.
With those limits in mind, there are plenty of ways it helps you as a small business.
Here’s the biggest benefit of Section 179: it supports small businesses that are looking to build their foundation by purchasing IT equipment.
If you’re a small business, investing in IT equipment is one of the fastest ways to grow your organization and take it to the next level. These tools provide you with the hardware and software needed to operate and function effectively. So it should come as no surprise that Section 179 is helpful for companies looking to buy IT equipment.
The amount you spend on IT equipment will vary depending on your specific needs. But for the overwhelming majority of small businesses, prioritizing IT investments is crucial to accomplishing your mission. It empowers your employees to get their jobs done, helps keep your customer information and data secure, and keeps you more efficient and organized as an enterprise.
Simply put, Section 179 exists to support small to middle-sized businesses who invest in themselves. By offering tax relief for IT-related purchases, you’ll get an opportunity to build your company’s IT infrastructure with a lower financial risk involved.
If you want to get rough estimates of how you can expect Section 179 to benefit you, there are resources available to help.
Section179.org has a Section 179 Calculator. This tool asks you to enter the cost of your equipment as well as your assumed tax bracket. It also factors in several other figures as well. Keep in mind that this tool is based solely on your own estimates, and therefore shouldn’t be used as any kind of official calculation when entering your taxes (it also requires you to enter your email address to receive the information).
It bears repeating: to fully understand the implications of Section 179, consult a tax professional. But knowing that it exists – and that it can help your company offset some of the financial costs associated with buying IT equipment – is a good first step.
What this knowledge should do is make it less intimidating for companies looking to purchase IT equipment. The next step is to better understand what to buy and how to implement it.
To do this, you’ll want to partner with an IT services provider who understands the best equipment to pair your team with and how to get the most out of it. For businesses in northwestern Indiana, that partner is Schilling IT.
Schilling IT has a well-versed group of expert IT professionals ready to advise and assist, seamlessly integrating themselves with your team. For more on how Schilling IT can help revolutionize the way your business leverages its IT capabilities, contact us today.
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