Section 179

By | October 23, 2007

Before you start scratching your head while scrolling down the page looking for sections 1 through 178, I am referring to the US IRS Tax Code.

It’s day 2 of the 4th quarter rush and a lot of the new recruits have no idea why it gets so crazy in the office during this time. Most of the craziness has to do with the general flow of business – Equipment Sellers are sending out promos to try and move inventory for a strong year end close; while one of the other major reasons for the craziness is the tax benefits associated with financing during this time.

Technical- Section 179 of the United States Internal Revenue Code (26 U.S.C.179), allows businesses to immediately deduct the cost of certain types of property on their income taxes, as an expense (rather than requiring the property to be capitalized and depreciated). This property is generally limited to tangible personal property such as equipment and vehicles. Buildings are not eligible for section 179 deductions. Depreciable property that is not eligible for a section 179 deduction is still deductible over a number of years through MACRS depreciation.

Example: Purchase price $125,000

    1st Year Write Off: $112,000
    ($112,000 is the maximum Section 179 write-off in 2007
    Normal 1st Year Depreciation: $ 2,600
    ($125,000-$112,000 = $13,000 x 20% = $2,600)*
    *Depreciation calculated at 5 years = 20%Total 1st Year Deduction: $ 114,600
    ($112,000 + $2,600 = $114,600)Tax Savings Assuming Rate of 35%: $ 40,110
    ($114,600 x .35 = $40,110)1st Year Savings / Lowered Equipment Cost: $ 84,890
    ($125,000 – $40,110 = $84,890)

Ok, here’s what all that means in Real Life- You can write off up to $108,000 of the equipment cost the year you purchase it.

Easy Example:

You buy something with a Purchase price of $125,000

*Magic IRS stuff Happens*

You Save $ 40,000 on your taxes!

How do you like that???

Related Articles and Links:

Section 179

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