When tax season rolls around, many business owners start looking for ways to save money. One of the best-kept secrets in the tax world is the Section 179 deduction. This deduction can help you save a significant amount on your taxes if you know how to use it effectively. Let’s dive into what Section 179 is and how it can benefit your business.
The Section 179 deduction is a tax benefit that allows businesses to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year. Instead of depreciating the cost over several years, businesses can take the entire deduction in the year the equipment is put into service. This can lead to substantial tax savings, enabling businesses to reinvest those funds into growth and development.
For the tax year 2025, the maximum deduction limit is $1,250,000. However, this amount begins to phase out when a business purchases more than $3,130,000 in equipment. This means that if your business is growing and investing in new equipment, you could see a significant reduction in your taxable income. Moreover, this deduction can be particularly beneficial for businesses looking to upgrade their technology or expand their operational capabilities, as it encourages immediate investment rather than delaying purchases for tax reasons.
Almost any business can take advantage of the Section 179 deduction. Whether you run a small startup or a large corporation, if you purchase qualifying equipment, you can benefit. This includes items like machinery, vehicles, computers, and even certain software. The key is that the equipment must be used for business purposes more than 50% of the time. This flexibility allows a wide range of industries to capitalize on the deduction, from manufacturing to retail, and even service-based businesses.
For example, if you own a construction company, you can deduct the cost of new tools or heavy machinery. If you run a retail store, you can deduct the cost of new point-of-sale systems. The possibilities are vast, making it an attractive option for many business owners. Additionally, businesses that operate in rapidly evolving sectors, such as technology or healthcare, can benefit from regularly updating their equipment to stay competitive, further leveraging the advantages of the Section 179 deduction.
Not all purchases qualify for the Section 179 deduction, so it’s essential to know what does. Generally, tangible personal property that is used in your business qualifies. This can include:
Additionally, improvements to nonresidential real property, like roofs, HVAC systems, and fire protection systems, may also qualify. It’s important to keep detailed records of your purchases, as you’ll need them when filing your taxes. Furthermore, businesses should consult with a tax professional to ensure they are maximizing their deductions and complying with all IRS regulations. Understanding the nuances of what qualifies can help businesses make informed purchasing decisions that align with their financial strategies.
Moreover, the Section 179 deduction can be particularly advantageous for businesses that are in a growth phase. By allowing for immediate expensing of capital investments, companies can enhance their cash flow and allocate those funds towards other critical areas such as marketing, hiring, or research and development. This strategic approach not only helps in managing tax liabilities but also positions businesses for long-term success by fostering an environment of continuous improvement and innovation.
Claiming the Section 179 deduction is relatively straightforward. When filing your taxes, you will need to complete IRS Form 4562. This form will guide you through the process of calculating your deduction and reporting it on your tax return.
Before you start, make sure you have all your receipts and documentation ready. Having organized records can make the process smoother. If you’re unsure about how to fill out the form or if you qualify for the deduction, it’s wise to consult with a tax professional.
To maximize your tax savings, timing is crucial. The equipment must be purchased and put into service by December 31 of the tax year you’re claiming the deduction. This means that if you’re considering making a large purchase, it’s best to plan ahead. Waiting until the last minute can lead to missed opportunities for deductions.
Additionally, if you are planning to finance your equipment, make sure the financing is in place before the end of the year. This ensures that you can still claim the deduction even if you haven’t fully paid for the equipment yet.
Despite its benefits, there are several misconceptions about the Section 179 deduction that can lead to confusion. One common myth is that only large businesses can benefit from this deduction. In reality, small businesses can save just as much, if not more, depending on their equipment needs.
Another misconception is that Section 179 can only be used for new equipment. However, used equipment also qualifies as long as it meets the necessary criteria. This opens up more opportunities for businesses looking to save on costs.
Many business owners often confuse Section 179 with bonus depreciation. While both allow for significant deductions, they operate differently. Section 179 allows businesses to deduct the full purchase price of qualifying equipment in the year it is placed in service, while bonus depreciation allows for a percentage of the cost to be deducted in the first year.
For 2025, the bonus depreciation rate is 40%. This means that if you purchase a piece of equipment for $10,000, you can deduct $4,000 in the first year under bonus depreciation. However, Section 179 may provide a greater benefit for smaller purchases, especially if you want to maximize your deductions in a single year.
Keeping track of your business expenses can be a daunting task, especially when it comes time to file taxes. This is where Everlance comes in. Everlance is an expense tracking app that helps business owners easily track their expenses and mileage, ensuring that nothing is overlooked when it comes to deductions.
With Everlance, you can categorize your expenses, take photos of receipts, and generate reports that make tax season less stressful. This means you can focus more on running your business and less on worrying about missing out on deductions like Section 179.
Tax laws can change, and it’s essential to stay informed about any updates to the Section 179 deduction or other tax benefits. Regularly reviewing your business finances and consulting with a tax professional can help you make the most of available deductions.
The Section 179 deduction is a powerful tool for business owners looking to save on taxes. By understanding how it works and what qualifies, businesses can significantly reduce their taxable income. With careful planning and the right tools, like Everlance, maximizing tax savings can be a straightforward process. Make sure to take advantage of this opportunity and keep your business thriving.
Source: About Publication 946, How to Depreciate Property, IRS.Gov
Everlance is the top rated mileage & expense tracking app for small businesses. Stay compliant and maximize your deductions effortlessly
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Brad Thibeau is the Head of Growth & Partnerships at Everlance. Brad has worked at Everlance since 2021 with a focus on helping self employed people save time and money on their taxes.
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