Every business needs PCs, servers, printers, network gear, data security hardware or software. Fortunately, Section 179 of the IRS tax code lets small businesses better manage their IT budgets. They can write off the entire cost of computer equipment and off-the-shelf software purchased and put in use before December 31, 2015.
179 Recap
Most people think the Section 179 deduction is some mysterious or complicated tax code. It really isn’t.
Essentially, Section 179 allows small businesses to deduct the full purchase price of qualifying equipment and/or software bought or financed during the current tax year. That means, if you buy or lease a piece of qualifying equipment, you can deduct the full purchase price from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves.
Section 179 can have the effect of reducing the cost of technology purchased by as much as $25,000. In addition, special offers may be available on particular items. The Section 179 tax break works like this:
• When your business buys certain items of technology equipment, it typically gets to write them off a little at a time through depreciation. For example, if your company spends $50,000 on a machine, it could be able to write off $10,000 a year over five years.
• Now, while it’s true that this is better than no write-off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it. If businesses could write off the entire amount, they might add more equipment this year instead of waiting over the next few years.
• That’s the whole purpose behind Section 179 – to motivate your business to move in a positive direction.
• For most small businesses, the entire cost up to $25,000 can be written-off on the 2015 tax return.
• The deduction applies to both cash and lease purchases, so you don’t have to pay the entire cost up front.
• As long as you begin the lease by December 31, you can still deduct the full price from your 2015 taxes, even though you may be paying off the lease during the next 3 to 10 years.
179 = Technology Savings
A lot of business owners don’t realize that software qualifies as a capital expenditure. However, the software—whether it’s financed via specified leases or purchased outright by you—must:
• Be used in your business for income-producing activity
• Have a determinable useful life
• Be available for purchase and subject to a non-exclusive license.
Another major Section 179 perk allows users to acquire up to $200,000 worth of equipment without actually spending that amount during 2015. With a properly structured capital lease, the amount you can deduct may actually exceed what you have to pay up front and give you a positive cash flow.
Tread lightly, though, as many small-business leasing firms are notorious for applying outrageous terms to loans. Your managed IT partner can help you navigate this tricky landscape by leveraging a trusted relationship they may already have with a qualified and credible leasing partner.
As you start budgeting for IT, here are specific examples of technology items that may qualify for the deduction:
• Workstations, Laptops, Tablets, Smartphones
• Servers, Server upgrades, Printers
• Routers, Network switches, Network security appliances
• Windows 10, Windows Server 2014, Microsoft Office 2016, Microsoft Dynamics
• Other off-the-shelf software (but not cloud-based or custom coded software)
Remember that purchases made throughout the year also qualify for the end-of-year savings. Yet there are limits and conditions, but most new or used equipment qualifies. So, if you are purchasing software, computers, hardware, servers, phones and other business machines in 2015, it’s wise to close the deal before the end of the year to get the most bang for your buck.
Act Now on 179
Section 179 can change each year without notice, so it’s best to take advantage of this generous tax code while it’s available. Get with a professional tax advisor now to make sure you verify that your company is properly exercising the Section 179 deduction this year.
Once you have consulted your accountant about the benefits Section 179 can bring to your business, you can start finding out what end-of-year technology tax moves can save your business thousands of dollars.
You can request a complimentary Tax Break Consultation from us at any time for hardware and software purchases. With our IT expertise and knowledge of Section 179 and the latest technologies, we help your business:
• Save money
• Reduce downtime
• Improve productivity
• Keep it running smoothly.
Besides … who doesn’t want to reduce their tax burden and upgrade their technology environment at the same time?