For business owners, the ability to write off the cost of purchasing specific equipment and property on their tax return can significantly affect their profit margin for that year. Understanding the tax laws that may apply to your business, like IRS Section 179, is the first step to taking advantage of the tax write-offs available to your company. For best results, you may want to have an accountant or tax professional handle your tax write-offs, but the more you know, the more informed your decisions will be.
The Section 179 tax deduction changes may make it possible for your company to get a complete tax write-off for business equipment, including machinery, vehicles, and in some cases, real estate. This is a particular advantage for small or midsized business owners who need to purchase a new piece of equipment to stay competitive but are concerned that their company will not be able to absorb the cost.
Let’s say you own a small engraving business and would like to expand. You will most likely need to invest in a larger, more versatile laser engraving machine to meet your planned potential. OMTech has you covered! While these machines can be pricey, you should consider them a necessary aspect of your expansion plan. It may make the decision a bit easier knowing that you can write off the entire cost of purchasing the engraving machine in the same year you put it into use.
What Is IRS Section 179?
IRS Section 179 is part of the tax code that deals with tax deductions for machinery, equipment, and the particular property. This section allows business owners to take an immediate tax deduction for purchasing equipment that will depreciate in value over time. They can deduct the total cost in one lump sum, even if the item is still being paid off, as long as it was put into service during the tax year the deduction is being taken in. This method may help alleviate the immediate sting of the machine’s purchase price.
The other option is to capitalize the purchase and take depreciation over time. This is a viable option for companies that can absorb significant outlays of money in their annual budget. For those that can’t, Section 179 may be a better option.
For example, if you purchased a new laser engraver for $20,000 and intend to use it for company business 100% of the time, you have two options to use the purchase as a tax write-off:
- The first is to capitalize and depreciate the machine over five years at a rate of $4,000 per year.
- Alternatively, using IRS Section 179, you could write off the entire $20,000 in the current year.
Is Buying Equipment a Tax Write-Off?
If the equipment purchased for your business meets specific basic requirements, then YES, it is a tax write-off if it meets specific basic requirements.
Any equipment, software, or vehicles purchased by the business must be used for company-related tasks more than 50% of the time and the amount of deduction you take is based on the percentage of time the item is used for company business.
How Much Can I Write Off for Business Equipment?
The total amount you can write off on your company’s taxes for purchasing business equipment varies from year to year.
In 2022, the maximum cost for equipment purchased may not exceed $2.7 million to qualify for the tax write-off allowed by IRS Section 179. If you have spent more, you will have to capitalize on the purchases and depreciate them.
If you meet the requirements, the maximum amount that you can get deducted as a Section 179 deduction in 2022 is $1.08 million.
What Qualifies as a Section 179 Deduction?
Any machinery or equipment necessary to the function of your trade or business may qualify as long as the total purchases in any given year do not exceed the limits set for that year. Even certain real estate purchases may also be eligible if you choose to deduct them under Section 179 instead of some other tax code section.
For the Best Advice, Talk to the Experts
For more information about how best to negotiate the tax code to the benefit of your company, you must talk to trusted, experienced, and qualified tax consultants.
For more information about purchasing the best laser engraving machine to meet your needs or how to finance one, contact us at OMTech to get the guidance you are looking for directly from an expert. We are the experts in laser engraving machinery and know just how to connect you with the machine that will meet both your engraving needs and your budget.