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Take Advantage Of The IRS 179 Deduction Now Before It Expires (Questions/Answers)

On January 2, 2018, H.R.1 was signed into law. It revised several previous tax laws going forward. With the passage and signing into H.R.1, the deduction limit for Section 179 increased to $1,000,000 for 2018 and beyond. In addition, the limit on equipment purchases was increased to $2.5 million.

What Is Section 179?

The IRS 179 Deduction was enacted to help small businesses like yours by allowing you to take a depreciation deduction for certain assets in one year, rather than depreciating them over a longer period of time.

It lets you take an outright deduction equal to the full purchase price of a qualifying piece of equipment. This means you can lessen your taxable income, and ultimately your tax burden.

When Is The Deadline For This Year?

Section 179 always expires at midnight, December 31st. To take advantage of Section 179 this year, you must buy (or lease/finance) your equipment, and put it into use, by midnight 12/31/2018.

What About The Bonus Depreciation?

The bonus depreciation is 100%, was made retroactive to 9/27/2017 and is good through 2022. The bonus depreciation also now includes used equipment.

The Tax Cuts and Jobs Act (TCJA) extended the ability to write off Bonus Depreciation through 2026 (or 2027 for certain assets), and it made other changes to the write off percentages and the types of assets that qualify for Bonus Depreciation.

What Happens After 2022?

The 100% deduction will stay in place for five years. It will step down each year after, and then end in 2026.

After 2022, the depreciation percentage will be reduced by 20% each year (80% for assets acquired in 2023, 60% for assets acquired in 2024, 40% for assets acquired in 2025 and 20% for assets acquired in 2026), until it is eliminated.

Can You Lease or Finance Equipment And Still Qualify For Section 179?

Business equipment (including technology and software) financed or leased still qualifies for Section 179. This is true even if you’re making payments on equipment over several years. However, the equipment must be placed in service for business purposes to quality.

What Type of Equipment Qualifies for Depreciation?

Any equipment that’s purchased under a Capital Lease, cash sale or a dollar buyout, and where you’re considered to be the owner of the equipment and maintain full control over the residual value qualifies.

What Types of Technology Equipment Are Eligible?

  • Routers and Firewalls (These should be replaced every 2-3 years for security purposes.)
  • Switches (Take advantage of the newer, faster switches that are available today.)
  • Wireless Access Points (More and more devices rely on wireless connections for roaming across your facility.)
  • Off-the-Shelf Software (software that’s not customized for your business)
  • Servers (These should be replaced every five years.)
  • Phone Systems (VoIP or traditional)
  • Backup & Disaster Recovery Appliances (Do you have a reliable system that will support your business if you suffer from a natural or manmade disaster?)
  • Workstations and Monitors (Consider adding a 2nd monitor for your key staff to increase productivity.)
  • Laptops and Ultrabooks (New technology is available with much longer battery life.)
  • Scanners (Today’s scanners are faster and allow you to scan multiple documents at once.)
  • Battery Backups (You need these when the power goes down.)
  • Storage SAN- Storage Area Networks, RAID-Redundant Array of Independent Disks, etc. (Digital picture files now require a lot more storage today.)

This is a significant and impactful advantage that you should take advantage of if you want to buy equipment and lessen your tax burden.

It’s important that you check with your accountant or another tax professional about any specifics regarding your business or industry.

Did you find this article helpful? If so, visit our Blog to read others and stay up to date on news that will help you use business technology more effectively.

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