There is no question 2017 will go down as a wild year for the construction industry—a seemingly robust economy juxtaposed against one natural disaster after another. But before you kiss 2017 and all the fires, floods, and hurricanes goodbye, there’s still time to make some savvy year-end tax moves.
We know—taxes are tedious and a little boring. But there’s no time like the present to dig out those receipts and make those year-end purchases before spending that extra cash on a company-wide blowout. The good news? If you’re a small or medium-size business, it’s a perfect time to take advantage of Section 179 of the U.S. tax code.
Deduct Up to $500,000
As dull as Section 179 sounds, a potential $500,000 tax deduction is actually pretty exciting. Here’s the scoop: Section 179 is part of the PATH Act (Protecting Americans from Tax Hikes Act of 2015) and was passed after the financial crisis. It was written specifically to help small- and medium-sized business. It expanded the deduction limit to $500,000 to provide significant tax relief. By comparison, these same businesses were only allowed to deduct $25,000 back in 2014. The kicker is that all equipment and software must be financed and in place by midnight December 31, 2017.
So, here’s a question: How would you like to send less of your hard-earned profits to Uncle Sam? In fact, one of the main selling points of the Section 179 deduction is that it allows businesses to deduct the full purchase amount of qualifying equipment in the given year. Before Section 179, you would have to depreciate the deduction over a number of years. For example, if you bought computer software for your business that cost $10,000, you would previously have to file using a five-year depreciation schedule with a $2,000 deduction per year. Under Section 179, you can deduct the full purchase price of the qualifying equipment in the year it was purchased.
Let’s say you’re a scrappy new venture or a contractor trying to save some pennies and you buy some equipment that is “new to you.” Under Section 179, even this “used” equipment qualifies for the deduction. In addition, businesses of all sizes can depreciate 50 percent of the cost of equipment acquired and put in service during 2015, 2016 and 2017. Then bonus depreciation will phase down to 40 percent in 2018 and 30 percent in 2019.
The Nitty Gritty Details
Let’s take a closer look at the types of purchases that qualify for this deduction. According to the nonprofit advocacy group Section179.org, this includes:
- Equipment (machines etc.) purchased for business use
- Tangible personal property used for business
- Business vehicles with a gross vehicle weight more than 6,000 lbs (Section 179 Vehicle Deductions)
- Computer “Off-the-Shelf” Software (On-Screen Takeoff®, Quick Bid®, Digital Production Control®, Oasis Takeoff®, and Oasis Fieldcenter® qualify)
- Office furniture
- Office equipment
- Property attached to your building that is not a structural component of the building (e.g.: a printing press, large manufacturing tools, or equipment)
- Partial business-use equipment (that is, equipment purchased for business and personal use, generally, deducted based on the percentage of time the equipment is used for business purposes)
Boost Your Bottom-Line The win-win: this deduction is specially designed to boost profits. By deducting the full cost of these expenses, you can lower the amount paid for equipment or software substantially. For the record, Section 179 does come with limits—it caps the total amount written off ($500,000 for 2017), and limits the total amount of the equipment purchased ($2,000,000 in 2017). The deduction begins to phase out dollar-for-dollar after $2,000,000 is spent by a given business, making it a true small and medium-sized business deduction.
Want to learn more? Consider discussing these deductions with your tax professional, or you can go ahead and check out Section179.org for news, history, and information on qualifying purchases.
*This program does not assume your company will qualify to take advantage of IRS Section #179. Please consult your tax advisor or accountant for additional information. Software must be purchased and placed in service by 12/31/17.