Get Small Business Tax Benefits this Year from Section 179

With the end of the year in sight, now may be a good time to make moves that could potentially improve your tax situation. And believe it or not, there is still a sizeable tax benefit for small businesses in section 179 of the tax code. 

What Is Section 179? 

Businesses are now able to deduct the full purchase (or lease) price for qualifying equipment and/or 

software bought or financed during the tax year. That’s great news if you’ve purchased, leased, or plan to purchase or lease a new or used Bobcat machine or any other large equipment this year.  Leased equipment qualifies only to the extent the lease is treated as a capital lease.  Section 179 is one of the few government incentives available to small businesses, and it has been included in many of the recent stimulus acts and congressional tax bills. Although large businesses also benefit from section 179 and bonus depreciation, the original target of this legislation was much-needed tax relief for small businesses. 

Here’s How Section 179 Works

In past years, when your business bought qualifying equipment, you typically wrote it off a little at a time through depreciation. However, many businesses preferred to write off the entire equipment purchase price the year they bought it. That’s exactly what section 179 does. It allows your business to write off the entire purchase price of qualifying equipment for the current tax year. So rather than waiting, the entire cost of qualifying equipment can be written off on the 2023 tax return (up to $1,160,000). 

But There Are Limits

There are caps to the total amount written off ($1,160,000) and limits to the total amount of the 

equipment purchased ($2,890,000). The deduction begins to phase out on a dollar-for-dollar basis after $2,890,000 is spent, so this makes it a true small- and medium-sized business deduction.  In addition, the total deduction for section 179 property may not exceed the total amount of taxable income derived from the trade or business.  To the extent the full deduction is not allowed in the current year, taxpayers are allowed to carry forward the excess to be deducted in future years.  

Because the section 179 expense deduction is treated as a form of accelerated depreciation, recapture of those accelerated deductions may apply if the equipment is sold or disposed of in subsequent periods. 

Who Qualifies?

All businesses that purchase, finance and/or lease new or used business equipment during tax year 2023 should qualify for the section 179 deduction. The equipment must be used for business purposes more than 50% of the time to qualify, and it must be placed into service between January 1, 2023, and December 31, 2023. Simply multiply the cost of the equipment by the percentage of business use to arrive at the monetary amount eligible for section 179. 

The Difference Between Section 179 and Bonus Depreciation 

Bonus depreciation is offered some years, while other years it’s not. For the 2023 year, it is being offered at 80%. The most important difference is both new and used equipment qualify for the section 179 deduction as long as the used equipment is “new to you.” Until the most recent tax law passed, bonus depreciation has only covered new equipment. In a switch from recent years, the bonus deprecation now includes used equipment. Bonus depreciation is useful to very large businesses spending more than the section 179 spending cap (currently $2,890,000) on new capital equipment. Also, businesses with a net loss are still qualified to deduct some of the cost of new equipment and carry forward the loss. When applying these provisions, section 179 is generally taken first, followed by bonus depreciation. That is, unless the business had no taxable profit. The unprofitable business is allowed to carry the loss forward to future years. 

Time to Shop?

Of course, always talk with your tax advisor and/or accountant. However, if you haven’t yet purchased that Bobcat® machine you’ve been looking at, now may be an opportune time. View new Bobcat equipment online or find your nearest Bobcat dealer.