With the signing into law, The Tax Cuts and Jobs Act of 2017, the deduction limit for Section 179 increased from $500,000 to $1,000,000 for 2021 and beyond. In addition, the deductions now more easily include computers, software, as well as, roofs, heating, and air-conditioning. Some used equipment can be included as well.
Tax Code Section 179 basically allows a business to take full depreciation expense in the year it purchases the equipment or software rather than spreading the depreciation expense over future years.
1) Businesses typically want to REDUCE INCOME TAXES
- To reduce taxes businesses either reduce revenues or increase expenses
- It is unlikely businesses want to reduce revenues… increasing expenses helps
- BUT, how does a business increase expenses but not use any of their cash?
- Depreciation is how….Tax Code 179 is just using depreciation more effectively
- Tax Code 179 allows a business to fully depreciate (i.e. expense) the cost of the equipment/software in the year they use it
- Depreciation is the expense a business takes for using the equipment or software
- Normal expenses like payroll, health insurance and rent are paid with actual cash out of the practice’s bank account. Depreciation Expense is just an accounting entry.
In the example below, Operating Expenses are increased by $100,000 due to the purchases of $100,000 equipment/software project (increased Depreciation Expense within the Operating Expenses). Thus, taking Estimated Taxes to $0.00
No Tax Code 179 With Tax Code 179
Revenues: $1,000,000 $1,000,000
Operating Expenses: ($ 900,000) ($1,000,000)
Taxable Income: $ 100,000 $ 0
Estimated Taxes Due: $ 21,000 $ 0
The power of Tax Code Section 179 should not be overlooked. You can save on taxes due and reduce the overall cost of your project. GSG Capital can help you with equipment financing or software financing and learn more about how Tax Code Section 179 can by visiting www.gsgcapitalllc.com or emailing info@gsgcapitalllc.com.