How Your Business Can Upgrade Its Technology and Earn a $500,000 Tax Deduction

 

A recent online survey conducted by Balboa Capital reveals that 45% of small to medium-sized business owners are not familiar with Section 179 of the United States Internal Revenue Code, which allows companies to write off up to $500,000 worth of qualifying new or used equipment purchased or financed during the 2013 calendar year.

The beefed-up depreciation deduction has been enhanced numerous times by stimulus acts of 2008, 2009, and 2010, specifically to provide much-needed tax relief for small businesses and encourage them to invest in their future. Typically, depreciation deductions are spread out over time, but Section 179 allows business owners to write off the entire cost of a purchase the year that they buy it.

Many people think Section 179 occupies some complicated corner of the tax code. But it’s actually quite straightforward: any business showing taxable income can use the deduction, and nearly everything from computers to off-the-shelf software to manufacturing equipment to certain business vehicles to office furniture qualifies. Dreading the impending death of Windows XP? Section 179 provides the perfect impetus to upgrade from the outdated OS, which Microsoft will end support for next April.

Section 179 does have limits, however. The total amount that can be written off is $500,000, and if the total cost of equipment purchased exceeds $2,000,000, the deduction is reduced dollar for dollar. But the American Taxpayer Relief Act of 2013, which extended Section 179 again, does allow for larger businesses that exceed the $2,000,000 purchase threshold to take a bonus depreciation of 50% on new equipment.

Now for the kicker: Section 179 can change without notice each year, and right now, the total deduction allowed is forecast to drop from $500,000 in 2013 to $25,000 in 2014. Unless Congress acts to extend the 2013 allowance, which financial experts don’t anticipate, the 50% bonus depreciation will also disappear. That means if your business is considering ANY sort of hardware or software upgrade, NOW is the time to take action. Why wouldn’t you want to write off $500,000 from your taxes?

Another major perk of Section 179 is the leasing option that allows you to acquire up to $500,000 worth of equipment without actually spending $500,000 this year. With a properly structured capital lease from CMIT Solutions’ leasing partner, Marlin Equipment Finance, the amount you can deduct from your taxes may actually exceed your payments.

Claiming the Section 179 deduction on your 2013 taxes is easy, although it’s not automatic: you or your tax preparer must fill out IRS Form 4562, the deduction must be taken on an item-by-item basis, and complete records of your business equipment purchasing or leasing must be maintained. 

But remember: barring significant action by Congress, the Section 179 deduction will decrease from $500,000 to $25,000 as of January 1st. If you want to deduct up to half a million dollars from your 2013 taxes, you MUST purchase or lease qualifying equipment before December 31st.

Once you’ve consulted with a professional tax advisor about the benefits of Section 179, call or email CMIT Solutions to map out the hardware and software purchases that can deliver major tax advantages to your business. Who doesn’t want to reduce their tax burden AND upgrade their tech environment at the same time?

Information dispensed in this QuickTip is for illustrative purposes only and accuracy is not guaranteed. CMIT Solutions and its owners, affiliates, and partners are not tax advisors, and no communications are intended to offer any tax advice. Please consult with qualified tax professionals concerning your situation.