As the end of the year approaches, many business owners seek out last-minute opportunities to reduce their tax liability for the current year while making strategic investments for the future.
If this sounds like you, taking advantage of the Section 179 deduction could be a smart move.
How the Section 179 deduction works
- Designed to encourage businesses to invest in qualifying equipment and software
- Equipment or software must be purchased and placed into service by December 31
- Total deduction limits apply and companies that exceed the spending cap will see their deduction reduced
Taking advantage of the Section 179 deduction provides immediate tax savings by reducing taxable income for the current tax year. Benefits also include improved cash flow and productivity gains through investment in equipment and technology.
Qualifying purchases
- Equipment, machinery, and office furniture
- Passenger vehicles used for business purposes
- Heavy vehicles, SUVs, and vans that meet weight restrictions and other criteria may qualify
- Desktop computers, laptops, printers, peripherals, and other office equipment
- Off-the-shelf software
- Custom software may qualify if it meets specific criteria
- Certain business property improvements may qualify, including HVAC systems, security systems, and roofing
Making the most of your deduction
- Businesses with significant profits to offset may consider investing in multiple pieces of equipment or software to maximize their deduction, particularly if forecasts point to lower profit levels in the years to come.
- Plan for future growth today by mapping out your needs for new machinery, technology, or systems over the next one to two years. Making those purchases now provides added efficiency for your business in addition to the immediate tax deduction.
- Double down on your cash flow advantage by financing your purchase. Section 179 allows the full cost to be deducted now, even if payments are spread over several years.
- Aging fleet? Now could be the right time to purchase new qualifying company vehicles.
Bonus depreciation
If your business has planned purchases that do not qualify for the Section 179 deduction, you may still be able to take advantage of “bonus depreciation” under the Tax Cuts and Jobs Act, which covers a wider range of expenses.
Note that only 60% of eligible expenses can be claimed for bonus depreciation in 2024. This percentage will drop to 40% for 2025, 20% for 2026 and then expire in 2027.
Section 179 deduction guidance
Need to engage a tax planning meeting to determine if investing in year-end purchases and taking the Section 179 deduction is right for your business? Email masterplan@accountabilityservices.com or call 206-522-0110.
