Taking advantage of Section 179 of the United States Internal Revenue Code today, allows you to write off equipment purchases up to $1.04 million in 2020 instead of depreciating the expense over time. This could mean huge savings now on equipment purchases – if you buy equipment and put it into service before December 31.
The Section 179 deduction includes new and certain used equipment – including most items listed for sale on Fleet Up Marketplace. The equipment you need may or may not qualify, so consult your tax advisor to see if a purchase will qualify.
Tax Deductions and Section 179 – More details
The Section 179 Deduction is a tax code which allows the self-employed or small businesses the opportunity to deduct all reasonable expenses related to purchasing qualified equipment for business use and is designed to support small business owners as well as medical and other aesthetic industries. In general, this includes items such as: tools, furniture, computers, printers, faxes, telecommunications, parts and components, software, business insurance, advertising and promotional materials, and business cards. It is important to note that this list is not exhaustive and is provided for educational purposes only.
As defined by the Internal Revenue Code, a “qualified asset” is any item which is necessary and directly useful to the operations of a trade or business and any property which is purchased for use in such operations. In order to claim a sectional deduction for purchases made during the year, certain requirements must be met. One of the most significant requirements is that the equipment or property purchased must be necessary to the conduct of the business. In addition, it must also be used on a regular and consistent basis and for the duration of the business.
To meet the section 179 deduction limit, a taxpayer may need to file a Schedule C, which lists the number of qualifying expenses of a taxpayer may claim. A taxpayer may also qualify for a larger deduction if he or she meets the annual threshold for income under the gifting or charitable giving rules. Also, if the business owner owns more than two rental properties, he or she may also qualify for a sectional deduction.
The second most common sectional deduction available to small business owners is the so-called “spending cap.” The so-called “spending cap” refers to the maximum amount a taxpayer may claim as a deduction. The limit is based on the taxpayer’s adjusted gross income (AGI). The lower the AGI, the higher the taxpayer’s spending cap. The tax relief provided by the section 179 deduction also starts to reduce once a taxpayer reaches his or her tax-exempt income.
To qualify for the section 179 deduction, taxpayers must be able to show that they spent a specific amount for qualified business purposes. The qualified business purposes include the actual cost of purchasing the property, the actual cost of improving the property, and any property use that can be considered an improvement, whether the improvement is actually permanent or temporary. In order to determine the taxable expense, it is important to note that this tax deduction will only apply if the property was acquired with the taxpayer’s actual cash, either during the sale or purchase process.
One other way to qualify for the section 179 deduction is if the taxpayer maintains an inventory, which meets the conditions for a trade-in or depreciation claim. In addition, certain tax-free personal property can also be used as deductibles. If you qualified for the section 179 deduction in 2020, and if you incurred more than one qualifying expense in your business-related activities, then you qualify for an additional tax deduction. This tax benefit may be available for you if you purchased a qualified business asset such as computers, office furniture, or even new vehicles that are used primarily for business purposes.
IronTek Solutions provides no express or implied legal advice with this information.