A business is allowed to expense the cost of any Section 179 assets. The IRS allows companies to write off the full cost of qualified purchases up to a given amount in the same tax year that they were acquired rather than depreciate the asset over an extended period of time. This type of tax deduction in the US tax code is referred to as a Section 179 expense deduction and is applicable if the expense meets certain criteria. Section 179 became part of the tax code in 2007 when the limitation on the aggregate cost was $250,000; this amount rose to $500,000 beginning tax year 2010 and was in force through tax year 2013. The objective of this tax deduction is to act as a business stimulant.
If the company acquires property which has an aggregate value of more than $2 million in one calendar year, the Section 179 tax deduction can be reduced and a company is not allowed to use the deduction to turn what would be a year where the company had net income into a year which shows as a net loss. For example, in the year 2013, if a company made $150,000 then the maximum Section 179 tax deduction is also $ $150,000, not the full $500,000 which was allowable. This proviso stops companies from making a current loss through deductions which they can then apply to the future; this maneuver is discouraged at it artificially reduces the company’s future tax liability.
When Section 179 was implemented it became popular as a deduction that was used for the purchase of large SUV type vehicles and then write them off. This loophole has since been plugged, and although vehicles can still qualify for the tax deduction, there are rather strict provisions on what vehicles and what amount qualifies.
Most companies welcome the Section 179 expense deduction as it provides immediate tax reduction rather than have it spread over several years. Rather than depreciate the asset over a number of years, it can be written-off in the tax year in which it was purchased, this provides immediate help for small and medium size companies that may be struggling financially. This tax deduction allows the company to keep more money back which can be used for upcoming plans and projects.
If you are experiencing any difficulties in determining what constitutes a Section 179 expense deduction then you need to consult with professional advisors. You are invited to contact Walker Reid Strategies.
