It’s the time of year when you should start thinking hard about Section 179 – especially if you haven’t bought any qualifying equipment yet. That’s because congress raised Section 179’s deduction to a robust $500,000. This means you can buy equipment now, and write off the entire purchase price this year, for up to a cool half mil.
The amount of money this allows you to keep at tax time can be substantial. Figuring a conservative tax rate of 25%, a $100,000 piece of equipment (thus a $100,000 tax deduction) translates to $25,000 in real dollars that stays in your bank account (as opposed to going to Uncle Sam’s).
You can look at that 25k several ways:
- If you paid cash for the 100k piece of equipment, you could say you got a fat 25% discount.
- That 25k can be added to your bottom line.
- If you financed the 100k, well, I need a little more space, because it’s a big deal…
If you financed that 100k right now (late September), you will likely pay 2-3 payments this year, then get a $25k savings on your taxes. Netted out, this means you paid nothing for the equipment this year.
It gets better – until your payments equal the 25k you saved, you still theoretically paid nothing for the equipment. So perhaps you get to use the equipment for free all of next year too!
But wait, there’s more!!!
Since from Sept of this year until that 25k is met, the equipment costs you $0 in net dollars. But all of that time, the equipment is being used, generating you revenue. This pushes the time the equipment actually “costs” you money out even further. Depending on how much revenue that equipment generates, your payments may never catch up to the money you kept (the net 25k from the deduction), and the additional revenue generated. So in essence, the equipment was free.
Read that again if you have to. Here, I’ll make a quick math equation:
TS + (NR x T) – TMP = P$
Tax savings (TS) plus new revenue (NR) over the term (T) less Total Monthly Payments (TMP) = Profit (P$)
I know, it sounds too good to be true, but it isn’t. That’s why Section 179 rocks!