Utilizing IRS Section 179 in Tax Write-Offs for Small Businesses

Today’s economy is creating challenges for many small businesses. Many things seem to be changing quickly. But one important thing has not changed: Section 179 of the IRS Tax Code. When small businesses use financing to purchase certain categories of equipment or software, they can take advantage of a powerful tax write-off.

Considering this option during the last quarter of the year is especially important because the deduction applies to the current tax year only. Businesses that expect to make qualifying purchases soon can use that timing to their advantage. In short, this tax benefit allows 100% of the equipment’s purchase cost to be depreciated in the year acquired against that year’s business profits. The equipment can be either new or used to qualify for the Section 179 tax benefit.

What is Section 179?

Section 179 allows a business to deduct a value of up to $1,220,000 of qualified equipment acquired and put in use during 2024. In addition, a bonus depreciation of 60% may apply to the $3,050,000 spending cap.

How We Help Small Businesses Succeed

A sole proprietor, partnership, or corporation can fully expense qualified tangible property the year it is purchased and put in use if the qualifying assets are used for business purposes more than 50% of the time.

Qualifying items include:

• “Off-the-Shelf” software (i.e., software that is not custom-developed and is available to the general public)
• Equipment purchased for business use
• Computers
• Office furniture or equipment
• Most work vehicles that cannot be used as a personal vehicle (forklifts, trailers, etc.)

Why Does It Matter in Q4?

Section 179 allows small businesses to deduct the total purchase price of equipment or software before paying off any equipment financing. Having the equipment immediately means they can start earning a profit or growing their business while keeping their working capital healthy.

But doing it at the end of a tax year can help make the most of Section 179 benefits. The deduction lowers the ultimate cost of the item. If a business is in a 24% tax bracket, it is almost like getting a 24% discount. That benefit frees up cash for future business needs, especially wise for uncertain times.

What Are Some Other Benefits?

Businesses purchasing with Capital Leases or Equipment Finance Agreements may still qualify as long as they receive the equipment on-site and put it in use in 2024. If financing terms include deferred payments, it might even mean starting to use the new equipment with no or very low cost for the rest of this year. In addition, if interest rates rise or inflation continues to be significant, a purchase now can help protect against the financial impact by locking in current rates and pricing.

How to Qualify

Qualified amounts may vary. We recommend consulting with your tax advisor or accountant before making any Section 179 decisions. Please note, this article if for informational purposes only. WSFS and NewLane do not warrant that your company will qualify for an IRS 179 deductible.