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Have you been putting off purchasing new hardware or equipment for your business? Well, this might be the year to pull the trigger. Why?
This past December the Tax Cuts and Jobs Act of 2017 was signed into law, creating some pretty compelling tax cuts and incentives for purchasing the new equipment your company might need.
What is the Tax Cuts and Jobs Act of 2017?
The TCJA is a bill “to provide for reconciliations pursuant to Titles II and V of the concurrent resolutions on the budget for the fiscal year 2018”…in english, it’s essentially an amendment to the Internal Revenue Code of 1968 and introduces reduced tax rates, and tax simplifications but it also eliminates some personal exemptions and limits other deductions. This bill affects individuals, corporate entities, partnerships and “pass through” entities, meaning sole proprietorships, LLC’s and S-Corps. But what we want to talk about specifically today is Section 179 of the TCJA and how it can help small businesses with large expenditures this year.
What is Section 179?
Section 179 is a section of the tax code that allows businesses to deduct the full purchase price (within certain guidelines) of equipment bought and put into use between January 1, and December 31, 2018. This year the deduction limit was increased to $1 million dollars (up from last year’s $500 thousand). There is a maximum spending cap of 2.5 million and businesses that spend more than 3.5 million on equipment won’t be eligible for this deduction, making it really an incentive for small businesses as many of then won’t even come close to that spending cap on equipment purchases in 2018.
What purchases qualify?
As an IT provider the qualifying purchases that we see as important for our clients are:
- Networking Hardware
- “Off-the-shelf” software.
You can find the full list of qualifying purchases on the section 179 website.
Depending on what your purchases look like this deduction may be as simple as filling out one form (4562). But you need to be sure that with each of these purchases you’re keeping all the records of when they were purchased and when they were put into use.
What does Section 179 look like in practice?
Now, I am not a tax accountant, so this example is going to be extremely basic.
Say you wanted to purchase a new server and necessary software that totalled $8,500 and were in the 35% tax bracket, the deduction would look like this:
- The total deduction for that server and software for the year would be $8,500
- The total cash savings from that deduction would be $2,975
- The lowered equipment cost (after the tax savings) would be $5,525
Like I said, this is a basic example, but one that shows just how beneficial this deduction could be to your business. So if you have some specific equipment/software in mind and this is something you would like to take advantage of, check out this online 2018 Section 179 Tax Deduction Calculator and we also recommend talking to your accountant to get a full explanation of what it all means. One thing to keep in mind as well is that this deduction is on an item by item basis, so depending on what you need to buy, you don’t have to use the deduction on all equipment purchases for the year, just whatever makes the most sense for your business.
While we can’t help with the accounting part of this, we can help with getting you the equipment you need, and making sure it’s set up so that you’re getting the most out of it. If you’ve decided that 2018 is the year your business gets a handle on its IT, give us a call!