The holiday season is in full swing, and for business owners the end of Q4 is fast approaching- meaning the time to prepare for 2014 is now. What better way to do this than by taking advantage of the Section 179 Tax Deduction for the remainder of 2013? Doing so will help business owners better plan for their company's immediate and long-term future when it comes time to make capital investments. The Internal Revenue Service (IRS) has made revisions to Section 179 over the years, which have resulted in various changes in deduction limits. The key benefit afforded by Section 179 is that it lowers the true cost of capital equipment purchases. Here is a scenario based on a $600,000 equipment acquisition and a 35% tax bracket:
|Section 179 Deduction||$500,000|
|50% Bonus Depreciation||$50,000|
|First Year Depreciation Deduction||$10,000|
|Total First Year Deduction||$560,000|
|Cash Savings (35% tax bracket)||$196,000|
|Cost of Equipment after Tax Savings||$404,000|
The 2013 Section 179 Tax Deduction limit is $500,000 and is set to reduce to $25,000 at the start of the New Year. Because of this, it is important that business owners act now on any equipment purchase decisions in order to take advantage of this deduction. Another incentive expected to drop is the first-year depreciation on new business equipment. Currently, it is a generous 50%, but is set to go to zero next year. Lastly, the cap on total equipment purchases is likely to go from $2,000,000 to $200,000.
What Types Of Equipment Qualify?
There are many different types of equipment and property that qualify for the Section 179 deduction. They include office equipment, office furniture, computers, off-the-shelf software, machinery, large business equipment, manufacturing tools, business vehicles and single-purpose structures.
Equipment that currently does not qualify includes barns, air-conditioning units, bridges, buildings, elevators, fences, investment property, land, and warehouses, to name a few. Prior to making any capital equipment purchases, business owners should consult with a business accountant or tax professional to find out if the equipment they are interested in is eligible for the Section 179 deduction.
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How Can Businesses Get Started Now?
A tax deduction of this size could enable business owners to start the New Year strong by adding new or updated equipment. Additionally, the tax deduction afforded by Section 179 can help improve a company's bottom-line and make it easier to continue or initiate growth through hiring, purchasing and expanding, as necessary.
The Section 179 Tax Deduction applies to both cash purchases and equipment financing, enabling business owners to choose the best option based on their individual budgets and equipment needs. Lease financing allows businesses to invest in equipment for a specified term for an affordable monthly payment. The ability to deduct capital equipment expenses can provide owners with the freedom and flexibility to reinvest back into their businesses.
Unless Congress acts fast and extends the Section 179 Tax Deduction limits before the end of the year, business owners might end up missing out on this special tax provision. Because of the uncertainty, many companies are investing in new or upgraded equipment now. Once qualifying equipment is purchased and put into business use, it is eligible for the Section 179 tax deduction.
Biography: This article was contributed by Balboa Capital, an independent financing company that provides small business loan products to small and medium-sized businesses throughout the United States.