As a business owner, it’s important to stay up-to-date on tax laws and deductions that can help you save money. One such deduction is the Section 179 tax deduction, which allows businesses to deduct the full purchase price of qualifying equipment and software in the year it was purchased. This deduction is especially valuable for small businesses and self-employed individuals who may not have the capital to make large purchases.
For tax year 2023, the Section 179 deduction limit is set at $1,160,000, which means that businesses can deduct up to $1,160,000 of the cost of qualifying equipment and software that was purchased and placed into service during the year. Additionally, the threshold for the deduction has been increased to $2,890,000.
It’s important to note that not all equipment and software purchases are eligible for the Section 179 deduction. The equipment must be used for business purposes more than 50% of the time, and certain types of equipment, such as real property and air conditioning and heating units, are not eligible. However, most types of tangible personal property and software can qualify for the deduction.
Another tax savings option for businesses is bonus depreciation. Bonus depreciation allows businesses to deduct a percentage of the cost of qualifying property in the year it was purchased, with the remaining cost depreciated over time. For tax year 2023, the bonus depreciation percentage is set at 80% for qualified property.
When comparing Section 179 and bonus depreciation, it’s important to note that while both deductions allow businesses to deduct the cost of qualifying property in the year it was purchased, Section 179 has a higher deduction limit and applies to a wider range of property than bonus depreciation. Bonus depreciation can be used for new or used property, while Section 179 is only available for new or “new-to-you” property.
In addition to the tax savings provided by Section 179 and bonus depreciation, businesses can also take advantage of tax savings when leasing equipment. When a business leases equipment, the lease payments are considered tax-deductible expenses, so savings can be seen throughout the duration of the lease, not just in the first year. Additionally, because the business is not purchasing the equipment outright, it does not need to use its capital to make the purchase, allowing it to preserve its cash flow.
Overall, there are many tax savings options available for businesses when it comes to purchasing and leasing equipment. By staying up-to-date on tax laws and taking advantage of these deductions, businesses can save money and improve their bottom line.