If there is anything that small businesses want to do come tax time, it is to maximize their deductions. Every year, millions of small business owners do a myriad of Google searches, in the hope that someone will hopefully tell them, in plain English, how to save money on taxes through increasing their deductions. And while most of the ” tax loopholes” that their friends/coworkers tell them about, on the golf course/watercooler/etc., probably won’t work, there is one deduction that small business owners don’t take advantage of, and that is Section 179.
What Is Section 179?
The name “Section 179” doesn’t seem very user friendly at first. If anything, it seems like it is one of the endless sections, and subsections of the Internal Revenue Code (which it technically is). Complicated and obtuse with seemingly the only objective being to confuse the tax payer, or accountant that is trying to make sense of the code. However, Section 179 is actually pretty easy to understand. Essentially, Section 179 of the Internal Revenue Code allows a taxpayer to immediately deduct the full cost of depreciable business assets, instead of depreciating the asset over it’s useful life. Which is by far the most common way to account for depreciable business assets. However, it is worth noting that the business assets, (and the businesses that the assets belong to), have to qualify for the deduction, in order to claim it.
What Qualifies For A Section 179 Deduction?
Like I stated in the paragraph above not everything is eligible for an immediate expense deduction. So what qualifies an asset for a Section 179 deduction? Well, for one, it has to be a “business asset” such as office equipment, chairs, computer, machinery, and other assets you would use in a business. Sorry, but buying a “business Lamborghini” for your marketing agency probably isn’t Section 179 deductible. For one, because it probably doesn’t contribute to your business in any meaningful way (beside making you look richer than you are). Also, not to mention that considering what type of Lamborghini it is, it is probably over the $1,040,000 total limit for all Section 179 assets. Unfortunately, the IRS isn’t going to let you write off millions of dollars in depreciable assets in a given year. And finally the business in question has to be making money. So if your business is losing money, then you cannot claim Section 179 on any of your business assets.
Sounds Cool, But How Do I Claim Section 179?
Well actually claiming Section 179 on your business assets is actually very simple. The first thing you should do, is to actually make sure that the assets you are trying to claim under Section 179 of the Internal Revenue code actually qualify. If the assets qualify then head over to IRS Form 4562 (Depreciation and Amortization) and fill out Part I of that form (along with other applicable sections for your business, obviously), and really that should be it. But perhaps trying to connect what you claimed on Form 4562 with the rest of your business return and perhaps that is too much for you to put up with (reminder there are a lot of IRS forms). In that case, why not turn to a CPA for help? Perhaps even someone like me, Aric Taylor, CPA and owner of CPA Solutions, LLC.
Conclusion
Section 179 is a great section of code, in the Internal Revenue Code that can save small business owners in the short term. However be sure to consult a qualified accounting/tax professional before making any decisions. There are rules and limits that exist for Section 179. Also taking the deduction in the year you buy a business asset means that you cannot benefit from depreciation deductions in the future, for that asset. However Section 179 can be a great tax planning tool for small business owners that are trying to come up deductions during tax time.