small business section 179

What is the Small Business Section 179 Tax Deduction?

Have you filed your small business taxes yet? Don’t worry, you still have time.

In the meantime, you should get up to speed on the small business tax deduction everyone’s talking about: the Section 179 Depreciation Deduction.

The small business Section 179 Deduction is an incentive created by the federal government to encourage businesses to buy more equipment and invest in themselves. But what is it exactly? Let’s break it down:

What’s the Section 179 Deduction?

Section 179 of the IRS Tax Code allows small businesses to deduct the full purchase price of financed or leased equipment (such as software). The equipment—which can be purchased, financed, or leased—must be acquired in the same tax year that the deduction is being taken. For instance, if you want to get a deduction to qualify for your 2015 taxes, you must have purchased, leased, or financed it between 1/1/2015 and 12/31/2015.

How does it work?

Whenever a small business buys equipment, it normally gets to write it off, little by little, over time through depreciation. For example, let’s say you own a restaurant and you purchased $30,000 on kitchen equipment. Generally, you’d have to write $10,000 a year for three years. But with Section 179, you can write off the entire cost on your 2016 tax return (up to $500,000).

What’s the deduction limit for 2016?

The limit is $500,000 for 2016, as in for any equipment acquired and put into service by 12/31/2015.

Why is this good for my small business?  

Mainly: Flexibility. Previously, small businesses would be strapped by tax expenses, with money going to taxes what could be used towards investing in the business. And that’s the whole idea behind Section 179—to help stimulate the economy by giving small businesses more freedom to spend on their business instead of taxes.

Are there limits?

Yes, there are limits. In 2016, the total amount that can be written off is $500,000 and the limit for the purchase amount is $2 million.

How do I know if I qualify?

All businesses that purchased, financed or leased less than $2 million in new or used equipment in 2015 should qualify for deduction. For a list of qualifying equipment, click here.

Have questions? Contact us today.