October 25, 2023
2023 is fast coming to a close and if you foresee a busy 2024 then now is a good time to add new construction software or new or used equipment and deduct all of it from this year’s taxes.
Section 179 of the U.S. Tax Code is a win-win for small-to-medium businesses. The tax code allows businesses, including those who make their living in construction, to spend $1,050,000.
This deduction is good until the total equipment purchased for the year exceeds $2,620,000. Once your purchases exceed that number, the deduction is reduced on a dollar-for-dollar basis.
To help you better navigate the ins and outs of this tax break we have come up with 10 things you should know when claiming your Section 179 tax deduction:
Number 1: Section 179 allows businesses to deduct the full cost of qualifying equipment and property purchases in the year they are placed in service, rather than depreciating them over several years.
Number 2: The maximum deduction limit for Section 179 in 2023 is $1,050,000. This means that businesses can deduct up to $1,050,000 of the cost of qualifying assets.
Number 3: The total cost of eligible equipment and property that can be purchased in 2023 before the deduction begins to phase out is $2,620,000. If a business spends more than this amount, the deduction is reduced dollar-for-dollar for every dollar spent over the limit.
Number 4: Section 179 applies to both new and used equipment. As long as the property is acquired for business use, it can qualify for the deduction.
Number 6: Qualifying assets include tangible personal property such as machinery, equipment, vehicles, computers, furniture, and certain improvements to non-residential real estate.
Number 7: Certain property is not eligible for the Section 179 deduction, such as buildings, land, property used outside the United States, and property used for lodging.
Number 8: The Section 179 deduction is limited to the taxable income of the business. However, any unused deduction can be carried forward to future years.
Businesses can take advantage of Section 179 by purchasing or financing the qualifying assets. Leased assets generally do not qualify for the deduction unless they meet specific criteria.
Number 9: The Section 179 deduction is available to businesses of all sizes, including sole proprietors, partnerships, corporations, and S corporations. However, different rules may apply to certain types of businesses.
Number 10: It's important to consult with a tax professional or accountant to ensure eligibility and compliance with the Section 179 rules, as well as to determine the specific impact of the deduction on your business's tax situation.
Please note that tax laws can change over time, so it's always a good idea to consult the most up-to-date information or seek professional advice.
In addition to the Section 179 deduction, businesses can also take advantage of bonus depreciation. In 2023, the bonus depreciation rate is set at 100% for qualifying assets. This means that businesses can deduct the full cost of qualifying assets in the year they are placed in service, even if the cost exceeds the Section 179 deduction limit.
Remember, while these points provide an overview of the Section 179 tax break in 2023, it's always advisable to consult with a qualified tax professional or accountant to understand how these rules specifically apply to your business and to ensure compliance with the latest tax regulations.