2020 IRS Section 179 Tax Deduction Simplified [+ Free Section 179 Tax Savings Calculator]

By Beacon Funding
Sep 17 / 81 Views

As a small business owner, did you know you might be eligible to save thousands of dollars when you finance your new or used equipment? That’s right!

The U.S. government wants to give you an upfront tax break when you finance qualifying new or used equipment and use it in the same calendar year with an IRS Section 179 tax deduction. With Section 179, that’s money back in your pocket to put towards your business. Watch the video or read the article to learn how you can save your business thousands of dollars with the Section 179 tax deduction: Financing your next equipment purchase is easier (and more affordable) than you think!

What is the Section 179 Tax Deduction?

Section 179 allows businesses who pay cash, finance, or lease equipment to deduct all or part of the purchase price of qualifying equipment during the tax year. Typically, when your business acquires equipment, tax deductions are realized over the useful life of the equipment. But unlike other methods of depreciation, Section 179 helps to accelerate tax deductions, allowing your business to benefit immediately. This incentive encourages small business owners to buy equipment and invest in themselves.

How Does Section 179 Work?

When you purchase a qualifying piece of equipment, it is typically written off a little at a time through depreciation.

Here’s an example of how a straight-line depreciation usually works:

A) Let’s say you buy a truck with a useful life of 5 years for $50,000. Through other methods of depreciation, you would write off a portion of the purchase price annually, spreading your tax benefit in smaller increments over five years.

Graph of deduction taken over the course of 5 years

While deducting a little at a time can be beneficial, many businesses would prefer to receive their full tax benefit upfront.

B) Let’s say you obtain that same $50,000 truck, but this time you use the Section 179 deduction. Now you are able to deduct the entire purchase price of the equipment in the year you purchase it, significantly reducing the total cost of equipment to you. 

Graph of Section 179 deduction taken in the first year

Section 179 helps small businesses reduce tax liability, improve cash flow, and stay competitive.

Who Qualifies for Section 179?

Businesses that purchase eligible new or used equipment during the tax year may qualify for a Section 179 tax deduction. Each year, the government sets the deduction limit and spending cap for equipment. Once this limit has been reached, the deduction decreases on a dollar-for-dollar basis.

What you need to know:

  • $1,040,000 deduction limit
  • $2,590,000 spending cap
  • Deduction maxes out after $3,630,000
  • Bonus depreciation is 100%

You can also take advantage of bonus depreciation for certain types of equipment above the Section 179 threshold, which helps reduce your tax burden further.

How Much Can I Save with Section 179?

While most methods of depreciation allow you to deduct a portion of the equipment’s purchase price throughout its useful life, Section 179 lowers the cost of your equipment by allowing you to deduct the full purchase price the year the equipment is purchased.

To calculate your potential savings, use a Section 179 Calculator.

To get started, type in the cost of your equipment and the calculator will show your first year deduction, bonus depreciation, and net equipment cost after tax savings.

How will you use your section 179 tax deduction? Start daydreaming!

What Kind of Equipment Qualifies for a Deduction?

New or used equipment purchased for business use qualifies for the deduction. Everything from heavy-duty equipment, business vehicles, office furniture, computers, and off-the-shelf software may be eligible. As with any tax-related questions, consult your CPA before purchasing to find out if the equipment you want is eligible for the Section 179 tax deduction.

Remember: The equipment must be used for business more than 50% of the time.

If you are thinking about acquiring new equipment to qualify for the deduction on your 2020 return, consider equipment financing. You can breakdown the cost of the equipment into low monthly payments while still receiving your max first-year deduction. A trusted equipment financing provider, like Beacon Funding, can help you acquire your equipment with financing so you can invest in your business today. Check out the equipment financing plans available for your business.

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