How IRS Section 179 can help your business

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As businesses enter the fourth quarter of the year, they consider what to do with their profits.  Unfortunately, this also means considering what percentage of your earnings must also be taxed.

What if there was a way to take a portion of that taxable income and turn it into a tax-free business investment? That’s where IRS Section 179 comes in. Section 179 allows you to deduct the price of new-to-you business equipment from your annual taxes.

WEBIT Services has provided IT services for the Chicago area for over 25 years. In that time, it’s become a reliable IT strategist, helping its clients choose when to invest in and utilize new technology.

This article will teach you what Section 179 is and how it can help your business.

What is Section 179?

IRS Section 179 is a tax deduction code for businesses. It allows you to deduct the total cost of newly purchased or leased company assets (like furniture, software, and computer equipment) rather than depreciating them over their useful life.

In previous years, if you bought new equipment for your business, you would write off a percentage of the cost over the useful life of the item. For instance, if you spent $20,000 on new computers for your office, your CPA or accountant would write off $4,000 of depreciation each year over five years.

With section 179, you could deduct the full price (in our example, $20,000) as depreciation all in the purchase year. That total price is taken out of the taxable equation entirely.

For 2022, you can deduct up to $1,080,000 of eligible property.

Section 179 eligible purchases

If equipment or software has been purchased and used within 2022, it is eligible for section 179 tax write-off.

The equipment or software does not have to be brand-new but must be “new to you.”  It also cannot be acquired from a related party with whom you have a relationship (family members, trusts, etc.).

Purchased equipment or software total use must be more than 50% for business. An item purchased primarily for personal use will not qualify for the section 179 write-off.

Eligible items include:

  • “Off-The-Shelf” software
  • IT equipment for business use
  • Computers
  • Office furniture or equipment
  • Alarm systems
  • Air conditioning units
  • Work vehicles
  • And more

Essentially, the asset must be tangible. Buildings and land do not qualify.

You can learn more about the specifics of Section 179 on its official website, section179.org.

How Section 179 helps businesses invest money back into their business

Section 179 was initially created to benefit small businesses, but small and medium-sized companies benefit from this deduction. It allows businesses to choose to invest in themselves rather than taxes.

By deducting the investment cause from taxes, Section 179 allows businesses to invest in needed equipment immediately rather than buy it in smaller portions over the years or go without. Section 179 allows you to take the profits you would have paid in taxes and invest in your business instead.

If your business has experienced significant profits this year and you’re looking to upgrade or update office equipment, Section 179 allows you to do so with the added benefits of a tax deduction for that purchase.

For example, let’s say a business knows it will need to replace a significant portion of its IT hardware soon. It has been budgeting for this project and anticipates doing the replacements in small batches over three years.

However, this business had an excellent year financially, and it discovered section 179. After consulting its IT provider and financial advisor, it decides to take advantage of the tax deduction and replace all the old technology at once.

In our example, a three-year project is resolved in one year. Yes, the business still had to spend money on the equipment, but that money went back into the company instead of towards taxes.

Next Steps for utilizing Section 179

IRS Section 179 provides an opportunity for businesses to claim a significant tax deduction for purchasing upgraded or updated tools and equipment this year. This allows a business to choose to invest a portion of its taxable income back into the business rather.

This can help speed up an upgrade’s timeline. Instead of investing in small batches over the years, a business can make larger purchases a deduct the cost from its annual taxes.

If you are considering purchasing new IT equipment, speak with your IT provider or internal IT department to see what equipment best suits your needs. You can also check out the Section 179 deduction calculator to see your estimated tax savings.

Speak with your preferred financial consultant to see if utilizing the Section 179 deduction is right for your business.

WEBIT Services specializes in IT strategy. In the past 25 years, it has helped hundreds of clients plan for IT purchases, updates, and installations.

If you are currently in need of an IT provider, schedule a free 30-minute consultation with WEBIT Services to see if we can help.

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