Small businesses must continuously invest in the latest technology to sustain growth and maintain a competitive advantage in often saturated markets.
Investing in cutting-edge business equipment can be expensive, but Section 179 of the IRS Tax Code provides a way to make imaging equipment and other large-scale purchases more affordable.
Eligible businesses can take advantage of this tax benefit by deducting qualifying business equipment and software, resulting in substantial savings during tax time.
Let's explore the Section 179 tax deduction and discuss how your organization can benefit from it.
What is the Section 179 Deduction (and How Does it Work)?
Section 179 deduction is a tax incentive available to U.S. businesses. It allows them to deduct the full purchase price of qualifying equipment or software purchased or financed during the tax year. Given the limitations, Section 179 deductions aid small and medium-sized businesses most.
The deduction is designed to encourage small businesses to invest in themselves by purchasing needed equipment and/or software.
How to Use The Section 179 Tax Deduction in 2024
The Section 179 tax deduction in 2024 (taxes filed in 2025), states that the deduction limit for qualifying equipment purchases is $1,220,000. The deduction limit is the maximum amount that an organization can deduct in a single tax year under Section 179. This means that if a business purchases or finances new or used equipment within the tax year, it can deduct the full cost, up to $3,050,000, from its gross income.
The spending cap, also known as the phase-out threshold, for Section 179 is $4,270,000. This is the total amount of equipment purchased by the business during the tax year. If the total cost of all the equipment purchased exceeds this cap, then the amount of the Section 179 deduction available begins to be reduced on a dollar-for-dollar basis.
For instance, if a business purchases $3.5 million worth of imaging equipment in 2023, they would exceed the phase-out threshold by $450,000 ($3.5 million - $3.05 million). Consequently, their maximum Section 179 deduction would be reduced by this overage, bringing it down to $770,000 ($1,220,000 - $450,000).
It’s important to note that depreciation and the Section 179 tax deduction have a distinct difference. Depreciation allows businesses to spread the cost of an asset over its useful life, typically several years. Section 179, on the other hand, allows businesses to deduct the full cost of the asset from their gross income in the year it was purchased, providing a much larger tax break upfront.
What Type of Business Equipment Qualifies for Section 179 Tax Deduction in 2024?
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. To be eligible for the Section 179 tax deduction, property must meet specific criteria and be used more than 50% of the time for business purposes.
Qualifying property for Section 179 includes:
Tangible Personal Property
This category includes:
- Office furniture
- Tools and equipment
- Business vehicles (with specific requirements)
- Computers and peripherals
- Manufacturing machinery
The property must be physically movable and used in business operations.
Equipment Purchased for Business Use
Qualifying equipment includes:
- Machines
- Printers and copiers
- Other tangible goods used in business
Important note: The assets must be "new to you" and acquired through purchase or Section 179 Qualified Financing from an unrelated party. Property inherited or received from related parties (e.g., siblings, spouses, parents, charitable organizations) is ineligible.
Improvements to Non-Residential Buildings
Certain improvements made to non-residential property after it was first placed in service qualify, such as:
- Roofing
- HVAC systems
- Fire suppression and alarm systems
- Security systems (including video surveillance)
Specific Business Vehicles
Vehicles that qualify include:
- Those designed to carry more than nine passengers (e.g., shuttle vans)
- Vehicles with a cargo area of at least six feet in length (e.g., certain trucks and vans)
- Business vehicles with a gross vehicle weight exceeding 6,000 lbs1
Off-the-Shelf Software
Software qualifies if it meets the following criteria:
- Purchased and put into use in the current tax year
- Available for purchase by the general public (not custom-made)
- Used for business purposes
Examples of qualifying software include:
- Business Operations: Billing, document management
- Security: Cybersecurity
- Productivity: Office suites, project management
- Industry-Specific: Point of sale, inventory management
Additional Section 179 Deduction Considerations
- Partial Business Use: Deductions are based on the percentage of time the equipment is used for business purposes.
- Listed Property: Items that can be used for both personal and business purposes (e.g., cameras, laptops) have stricter record-keeping requirements.
Remember to consult with a tax professional for specific advice related to your individual situation, as tax laws and regulations may change.
How Your Business Benefits From Section 179
How do section 179 deductions aid small businesses? Let’s find out.
The Section 179 tax deduction allows businesses to immediately write off the full purchase price of qualifying equipment or software in the year it was purchased and put into service. This means you don't have to wait for the depreciation over several years.
By deducting the full cost of your office equipment or software, you reduce the overall amount of taxable income for your business. This can lead to significant tax savings, freeing up cash that can be reinvested back into the business.
One of the major benefits of Section 179 is that it encourages growth and scalability by making it more financially feasible to purchase equipment and technology that will improve efficiency and productivity.
Here are a few ways your business can use Section 179 to improve or scale operations:
- Acquire a production printer to meet increasing client demands
- Replace multiple legacy printers with one versatile color multifunction printer
- Invest in cybersecurity software to safeguard your data
Pro Tip
2024 Section 179 Deduction Calculator
Use this helpful tool to estimate your potential tax savings. Learn More →
How To Claim Section 179 Deductions
While acquiring a Section 179 tax deduction can be straightforward, following these steps will help ensure you maximize your benefits and comply with IRS requirements:
1. Identify Qualifying Assets
Carefully review your business purchases to determine which assets qualify for the Section 179 tax deduction. Remember that eligible property must be:
- Tangible personal property used for business more than 50% of the time
- Acquired for business use
- Placed in service during the tax year
2. Calculate Your Deduction
Determine your business's taxable income and the total cost of qualifying equipment. Keep in mind:
- The maximum deduction for 2024 is $1,220,000
- The deduction begins to phase out when equipment costs exceed $4,270,000
- Your deduction cannot exceed your business's taxable income
3. Maintain Detailed Records
Throughout the tax year, keep meticulous records of all purchases, including:
- Date of purchase
- Date placed in service
- Cost of the asset
- Description of the property
- Percentage of business use
4. Complete IRS Form 4562
When filing your taxes, you'll need to fill out Form 4562 (Depreciation and Amortization):
- Part I is specifically for Section 179 tax deductions
- Provide detailed information about each qualifying asset
- Calculate your total Section 179 tax deduction
5. Consult a Tax Professional
Given the complexities of tax law and potential changes in regulations:
- Consider working with a qualified tax advisor
- Ensure you're maximizing your deductions while remaining compliant
- Stay informed about any updates to Section 179 rules
By following these steps and maintaining thorough documentation, you can confidently claim your Section 179 deductions and potentially reduce your tax liability significantly.
Upgrade Your Technology and Software with the Section 179 Tax Deduction
If you've observed that your business equipment is no longer meeting the demands of your organization, it’s time to upgrade. The Section 179 tax deduction presents a golden opportunity for small businesses to invest in cutting-edge technologies that will keep them competitive and unlock their full potential for success.
If you’re wondering which type of business equipment will have the biggest impact, contact the specialists at SymQuest.
