We’re in the home stretch of 2020, and for most manufacturing companies, this year was a real challenge. But in a year of unpredictability, there is one thing every business can still count on – Section 179, and it is more important than ever.
Section 179 is the business tax deduction that allows a company to expense/write-off eligible equipment purchases in full. Instead of depreciating equipment a little bit each year, using Section 179 allows the entire purchase price to be deducted the year it was purchased and put into service.
This year, the deduction is $1,040,000. That means a company can purchase slightly more than a million dollars’ worth of equipment and deduct the entire amount from their taxable income. For 2020, this can be a saving grace for manufacturers and B2B companies.
The great news is, almost all tangible business and office equipment qualifies, as do most business vehicles. Used/refurbished equipment qualifies as well. As long as the eligible equipment is purchased and put into service between January 1, 2020 and midnight December 31, 2020, the Section 179 deduction can be used.
To give a quick example of how much can be saved, suppose a company spent $100,000 on equipment. Under Section 179, they can deduct the entire $100,000 from their taxable income. Assuming a 35 percent tax rate, this will save the company $35,000 in taxes. Yes, you read that right – by buying $100k worth of eligible equipment, a company will pay $35k less in taxes this year.
Section 179 and COVID-19
COVID-19 and pandemic-related shutdowns have affected the operations of many businesses, but Section 179 remains the same. In fact, much of the equipment a company may have purchased to help modify their operations during the pandemic is likely eligible for the deduction.
Plexiglass screens, sanitizing stations, air purifiers, and similar are all Section 179 eligible. As are servers and laptops for increased work at home, and almost all common “non-custom” software is eligible as well. That is just scratching the surface; as stated earlier, almost all equipment a business needs to operate will qualify.
In addition, Section 179 is not affected by any other government program or assistance a company may have received. For example, if your company received a PPP loan during the pandemic, you are still welcome to use Section 179. That is very good news.
Another piece of good news is Section 179 can be used even if you financed or leased the equipment. For example, if you purchased equipment in October and financed it, you can still take the full purchase price as a Section 179 deduction. This means you will almost certainly save more in taxes than you made in payments, which can be very helpful to a company’s balance sheet.
A Quick 2020 Section 179 Recap
Let’s recap Section 179’s limits and other information.
2020 Deduction Limit: $1,040,000
Total Equipment Purchased Cap:
$2,590,000. Once equipment purchases exceed this, the deduction is reduced on a dollar for dollar basis. This makes Section 179 a true small and medium business tax deduction.
Equipment must be purchased and put into service between 1/1/2020 and midnight 12/31/2020.
Most tangible business equipment and production machinery, office equipment and furniture, computers and common software, vehicles more than 6,000 pounds. GVW, heavy equipment, safety equipment, signage, shelving, and more. Ask your accountant for details.
Does Used Equipment Qualify?:
Yes. As long as the eligible used equipment is new to the company purchasing/deducting it, it will qualify.
Does Financed or Leased Equipment Qualify?:
Yes. Section 179 is unaffected by how a company pays for the equipment – the full purchase price can be deducted, regardless of financed or leased status.
How Do You Elect to Take the Section 179 Deduction?:
Simple – you use IRS form 4562, available at the IRS website (or your accountant).
Section 179 has long been a favorite of manufacturers and B2B companies. In 2020, it matters more than ever. If you purchased any eligible equipment in 2020, make sure you take your Section 179 deduction, or make sure your accountant knows what you have purchased. It can make a big difference in your year-end profitability.
How Much Can You Save?
If you are interested in seeing how much you can save, section179.org has a great section 179 calculator at www.section179.org