In many industries the supply chain on equipment is getting worse compared to 2021. We have spoken with many vendors who have stated their sales would be great if they had equipment on hand to sell. The lack of inventory and long lead times will have a big impact on business owners being able to take the Section 179 write-off in 2022.
In the past, business owners would meet with their accountants in November or December to analyze how much taxable income they were anticipated to show for the year. Then they would strategize on what equipment they wanted to get on the books before the end of the year to minimize the profit they were showing (this is known as the Section 179 write off). As a brief overview, Section 179 is the accelerated depreciation write off businesses can take on equipment purchases. For example, a $50,000 equipment acquisition put in place in 2022 can be used to offset $50,000 in profit thereby reducing the amount of tax a business would have to pay. Even by structuring the funding as a 3 or 5 year lease, the owner can still opt for the accelerated write off and save on their payable tax in 2023.
The challenge in 2022 is that many manufacturers have lead times on equipment stretching out 4-12 months. We have seen this in a variety of industries including the construction industry, manufacturing, transportation, and even basic equipment like ice machines for restaurants. In order to claim the equipment deduction under Section 179 the equipment must be delivered and put in service by 12/31. That means customers doing tax planning at the end of November may not be able to claim the write off on their equipment since delivery won’t happen until 2023.
Here are some basic steps business owners can take now:
- Get a basic idea of what profit the business is currently showing. You don’t have to formally meet with your accountant, but you may have a good idea already that your business will have taxable income.
- Forecast what equipment benefits your business for 2023.
- Reach out to manufacturers now on lead times, if the lead time is more than 3 months are their other manufacturers with a shorter lead time? Is there used equipment instead that would satisfy your company’s needs?
- Last, with the FED continually hiking interest rates customers should secure approvals as soon as possible on equipment they may need by year end. The Fed is forecasted to hike rates here in September as well as in November….as an example American Capital Group’s approvals are good for 60 days which can help protect our clients from the rising cost of funds in the marketplace.
Interested in talking more about Section 179 for your business? Reach out to discuss with one of our Account Managers at (949) 822-3017 or chat now at the bottom right.