There is a great opportunity for business owners this year that I want to tell you about. The time has never been better to purchase needed business equipment including LED lights! You may have heard of the Section 179 deduction (this is in the tax code), but you may not have heard how it was changed in 2018. (Visit https://www.section179.org/section_179_deduction/ to get additional questions answered.) I’m going to break it down for you and the first thing you should know is this is VERY GOOD NEWS for business owners!
This code is more beneficial to businesses than it ever has been. It is basically a federal government incentive to purchase qualifying equipment.
In the past when a business purchased qualifying equipment, the cost of the equipment was written off a little at a time through depreciation. As an example, if a company purchased $50,000 worth of equipment it could write off maybe $10,000 a year for five years.
Most businesses would rather write off the entire purchase amount the year they buy it. This translates to LESS taxes paid!
In 2018 the Section 179 Deduction was raised from $500,000 to $1,000,000. This means companies “can deduct the full cost of qualifying equipment from their 2018 taxes, up to $1,000,000.” And it is a permanent deduction that businesses can count on to be there year after year. Here’s an example of what this means:
Say you purchase $1,000,000 worth of qualifying business equipment. And for the sake of the example we assume the business is in the 35% tax bracket. The Section 179 deduction allows you to deduct the full $1,000,000 expense. That saves you $350,000 in taxes on that purchase. This brings the actual cost of the equipment down to $650,000!
There is a Section 179 Spending Cap of $2.5 million. After $2.5 million is reached, the $1,000,000 deduction decreases on a dollar for dollar basis, before disappearing altogether once $3.5 million in expenditure for qualifying equipment is reached.
However, there is something else! It’s called a Bonus Depreciation. And this is something that is subject to change every year. This becomes very helpful to large businesses. The Bonus Depreciation comes into play when a company spends more than the Section 179 Spending Cap of $2.5 million on qualifying equipment. In 2019 it allows the business to deduct 100% of the cost of qualifying business equipment—no matter the cost. The Bonus Depreciation is offered some years and some years it’s not. In 2017 it was 50%. In 2019 it is being offered at 100%! With the Bonus Depreciation you can literally deduct 100% of the cost of business equipment—no matter what the cost.
Here’s an example:
Suppose you spend $5,000,000 on qualifying business equipment in 2019. And you are in a 35% tax bracket. The Section 179 Deduction disappeared after you spent $3.5 million. Now the Bonus Depreciation Deduction kicks in and you are able to deduct 100% of the cost of your qualifying business equipment! The savings is $1,750,000 in taxes that don’t have to be paid! This brings the actual cost of the equipment that year down to $3,250,000!
As you can see, the Section 179 Deduction is taken first. Then the Bonus Depreciation can be taken.
All of this has given businesses an incentive to purchase needed equipment now instead of later. So in 2019’s tax return, the entire cost of qualifying equipment can again be written-off no matter what you spend!
The major limitation is the equipment must be purchased or financed and placed into service between Jan 1, 2019 and December 31, 2019 in order to deduct the full amount on the 2019 tax return.
Another requirement to keep in mind regarding the full deduction is the equipment must be used for business purposes more than 50% of the time. If you multiply the cost of the equipment by the percentage of business-use, you’ll get the monetary amount eligible for the Section 179 deduction.
WHAT IS QUALIFYING EQUIPMENT?
Almost all types of business equipment that a company buys, finances or leases qualifies for the Section 179 deduction. It could be “machinery, computers, software, office furniture, vehicles, or other tangible goods.”
And of course, this includes the cost of LED lighting!
Contact me, Jeannine Hall, at Consumer Energy Solutions today to ask questions or to find out how we can help you. There may be utility rebates in your area that will lower the overall cost of an upgrade to LED even more! I can find out for you. Call 844-277-0043 or email JHall@cesstaff.com.