Section 179 Tax Deduction for your Technology Assets
1. What is Section 179 Tax Deduction?
Section 179 of the Internal Revenue Code (IRC) allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. The deduction can be taken for both new and used equipment. There is no limit on the amount that can be deducted, so long as the equipment is placed into service in the tax year.
Section 179 Tax Deduction can be used for technology assets such as:
- Networking Equipment
- Data Storage Devices
The deduction can also be used for other types of equipment that you use in your business.
You can take advantage of this tax break on up to $500,000 worth of equipment purchases per year. Section 179 Tax Deduction is not available for IT service contracts. IT service contracts are only eligible for the deduction if they are purchased along with qualifying equipment.
2. How do I know if I should take advantage of the Section 179 Tax Deduction?
If you are thinking about purchasing new technology assets for your business, it is important to understand how the Section 179 Tax Deduction works. There are some qualifications you will have to meet.
- You currently have a small business
- You are thinking about starting a small business
- Your company has been making IT purchases throughout the year
If any of these apply to you, it’s time to take advantage of this tax break.
3. Why should I take advantage of the Section 179 Tax Deduction?
This may seem like a silly question to some, but there are several reasons you should take advantage of the Section 179 Tax Deduction. Saving money on your taxes is the obvious reason, but what the business does with those savings can be the real gamechanger. Freeing up cash flow for other business expenses that are deemed nice-to-haves can grow your business significantly. If you start investing in new technology for your company the returns can be massive. If you are an architect or developer investing in virtual or augmented reality tools and hardware could become your massive differentiator when it comes time for clients to pick what company they are going to work with.
4. The pros and cons of taking the Section 179 Tax Deduction
There are pros and cons to taking the Section 179 Tax Deduction:
- You can deduct the full purchase price of qualifying equipment
- There is no limit on the amount that can be deducted
- The deduction can be used for both new and used equipment
- The deduction can be used for IT assets and other types of equipment
- The deduction is only available for businesses with a taxable income of less than $2,500,000
- You must place the equipment into service in the tax year to qualify for the deduction
5. Examples of ways to use the Section 179 Tax Deduction
Now that you know what Section 179 is and how it works, here are some examples of how you can use it for your business:
- You purchase a new computer for $1,000. You can write off the entire purchase price on your taxes.
- You purchase a new server for $10,000. You can write off the entire purchase price on your taxes.
- You purchase new software for $5,000 and finance it over five years. You can write off $1,000 ($5,000 divided by 5) in the 1st tax year, and then $1,000 for each of the following four years.
In this case, you can deduct in full in the tax year that it is placed into service, up to the maximum amount ($500,000), minus your cash purchases ($25,000) and minus the amount financed ($0).
Remember, these are just a few examples. To find out how you can use the Section 179 Tax Deduction for your business, speak to your IT partner or IT consultant.
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