Do you have a small business you’re getting ready to file taxes for? Does your business use tangible assets like equipment and off-the-shelf software?
If so, the first thing you should do when preparing your taxes is review your financing and purchases of new or used equipment and off-the-shelf software for maximum depreciation write-offs.
The IRS Section 179 Deduction
For tax year 2016, business owners can take advantage of the IRS Section 179 Deduction, part of the American Recovery and Reinvestment Act (ARRA) enacted in February 2009.
To qualify for the deduction, your property must meet the following requirements.
- It must be eligible property (nothing from this list)
- It must be acquired for business use
- It must have been financed/acquired by purchase (no leases or rentals)
- It must have been financed or outright purchased and being used by December 31, 2016
This IRS ruling was designed to provide tax relief for small and medium-sized businesses by allowing owners to take the entire depreciation amount of new and used equipment in the year it was purchased; for tax year 2016, owners may write off up to $500,000.
Calculating Your Depreciation
Here’s how it works. If, for example, you have a $50,000 piece of equipment with a “useful life” of 5 years and a “salvage value” of $5,000, the IRS Section 179 Deduction allows you to depreciate $9,000 per year.
However, you cannot use the deduction under the following circumstances:
- If the depreciation totals more than your business’s net taxableincome for 2016
- If you have a net loss for the year
In addition, the Section 179 deduction places a $2 million spending cap on equipment purchases, making this a true small business incentive.
After you reach the spending cap, a bonus depreciation of 50% is available if you bought more than $500,000 worth of new equipment. (Used equipment still qualifies for the Section 179 Deduction but does not qualify for the bonus depreciation.)
Questions about the IRS Section 179 Deduction and how it can help you? Other questions about filing your taxes for April? Contact us for assistance!
Oh, and don’t forget the new deadline for this year – you have an extra 3 days to do your taxes! Instead of being due April 15th, you have until April 18th to file this year.