For many business owners, equipment purchases are necessary to replace outdated equipment but to also expand their business’ capabilities during periods of growth. However, when it comes to filing your taxes, depending on the purchase, you may be able to deduct the whole expense under Section 179, versus having to depreciate the equipment over several years. So how can your determine if you qualify? Consult with your tax professional or accountant, such as EB Tax Consultants in Brooklyn, NY, to determine if your latest purchase qualifies. Below is some information to keep in mind about Section 179.
What Types of Property Could Qualify?
In order to be considered, your purchase must be for a new or used tangible asset that your business will be using at least 50% of the time. This could be a new copier, printer or larger piece of equipment. It must also be put into use during the tax year that you are claiming the deduction, not just purchased.
There are a few things that will not qualify under this definition of tangible property, such as the following:
These items would not be considered tangible and necessary to the functioning of your business, so they would not be considered eligible equipment purchases.
Claiming Your Deduction
In order to claim your deduction, it is important to keep track of what it is used for. If you purchase an item for business and personal use, then you must use it at least 51% of the time for your business. In addition, your deduction will be reduced to account for the personal use, as the IRS is only giving the deduction for the business use portion. Therefore, it is important to track your business user to determine how much of a reduction will occur.
If your use for business purposes is less than 51%, then you will have claim depreciation over several years and will not be able to deduct the full cost of the item in the first year of ownership. You also cannot convert an item from personal use to business use and claim the full deduction for the cost. It must be a new purchase and the item must be used 51% of the time during the year it was purchased by the business.
Your deduction amount is also capped by Section 179. The amount you can deduct for 2015, for example, is $500,000. Additionally, if you spent over $2 million investing in your business, your deduction can be reduced by the amount you went over the $2 million dollar threshold. Therefore, you will need to plan your investments over several years if there a several large purchases to be made.
Your business cannot have a loss and still claim the Section 179 deduction. The deduction can also not be more than the net income of your business for the year. Therefore, you will want to plan your purchases during years with higher profitability, to maximize this deduction for your business.
If you anticipate your business inheriting or being gifted equipment that can be used in the course of business, then you will need to be sure to recognize that this will not qualify for the Section 179 deduction, because it was not purchased by your business. While an item can be used, it must be an actual purchase to qualify for immediate depreciation in the first year.
Overall, it is important to remember that your business needs to purchase tangible assets, which are being used primarily for the business to take advantage of this deduction. Businesses that acquire property through gifting or inheritance cannot use this deduction to claim the full depreciation of that item in the first year of ownership. Therefore, you will want to plan your purchases to be within the limits of the Section 179 maximum amounts, as well as being put into use within that first year. Working with your accountant, you can be sure to get the most depreciation deduction each year for your business’ equipment.
Click on the link below to connect with a tax professional or accountant at EB Tax Consultants in Brooklyn, NY, who can assist you in determine which of your purchases this year may qualify for a Section 179 deduction.
