I can hear you saying “But Fletch, nobody talks about Section 179 early in the year. In fact, I never even think about it until the fourth quarter when I’m scrambling to get my equipment purchases in to make the deadline.”

And that’s exactly my point. Using Section 179 earlier in the year makes a ton of sense. Let me list a few reasons why:

You LOCK IN Your Tax Deduction

I’ve known companies who held off on a Section 179 purchase, opting to wait until later in the year. Then, for whatever reason, the purchase never happened, and they missed the deduction. Now maybe the reason was that the equipment delivery timeframes were too long to make it by year-end. But usually it was something minor, and acquiring new equipment got pushed a bit because it was another “thing” on the list. 

Making your Section 179 purchases early in the year guarantees you will get the deduction. If you plan to acquire eligible equipment this year, and you can acquire that equipment now, then you probably should. 

The Equipment Earns Revenue

In most cases, a Section 179 purchase is tied to earning revenue. Machinery,  vehicles, technology… these all earn revenue, most of them from the day you put it into service.  Having more months of revenue producing equipment at your disposal has no downside. You’ll still get the deduction, and you had the advantage of the equipment working for you all year. Not a bad deal. 

Not Rushing to Buy = Better Equipment Choices

When you are rushing to beat the deadline late in the year, your equipment options may be limited. Did you really want the bare bones model in “Mud Brown”? No? Then why did you wait? Because that’s all the dealer has left, and there’s no time left to order a different one. Take it or leave it. 

Note: they probably had 50 of them back in March. With all kinds of helpful options… in “Midnight Blue” no less! 

Wrapping Up

Section 179 is good on purchases made all year. But there are definite advantages to using Section 179 early in the year. You guarantee you’ll get the deduction, you can earn more revenue, and the selection is probably a lot better, especially since you’re not in a rush to buy.  

If you need it, get it. That’s my take! 

First and foremost, I’d like to see interest rates stabilize. That would be my main wish for 2023. It’s not going to come true of course, but it doesn’t mean I can’t ask for it. The reality is rates will probably keep rising for a few more cycles. How much is unknown, so maybe “not seeing as many ‘big’ increases in a row” could be a more reasonable wish. THAT one has a shot at coming true. 

Second, I would like to see the supply chain loosen up a little more. We’re still seeing supply chain issues, and while there are industries that are close to returning to normal, there are others where items simply cannot be had. Plus, the computer chip shortage is still a major thing, and it’s affecting many industries, as well as keeping a PlayStation 5 out of my wanting hands.

I’ll stick with economics as a third wish, as it really dominates all industries right now. I wish for less government spending, as that’s not helping inflation at all. It seems like rate hikes could eventually push us into a small recession, and I’d like to see all possible efforts to avoid that utilized. That means reigning in govt spending. I’m not going to get into sides here or political details as that’s pointless – just cut spending please. Thank you. 

One last wish on a personal/professional level: I want more companies to look at offering equipment financing. Because it’s easily the single best sales boost any equipment seller/vendor can deploy. And it’s not only free; it’s ridiculously easy and straightforward too. If a company is not offering financing, I guarantee doing such will instantly make 2023 better than 2022 was.  

Ok there you have it – my wish list for 2022. Almost all economic, but hey, that’s where we are today. I’ll deal with it by cranking up some Jimi on Christmas morning (I hope!)

Honestly, I feel bad for Section 179, because all I’m seeing in the news is inflation and rates. I hear about how everything costs more. But I never hear about the single best business incentive ever invented: our friend Section 179.

But it’s still here in 2022, and it’s better than ever. Here are a few numbers for you:

• The deduction is a robust $1,080,000. That’s one million, eighty thousand dollars (up 30k from 2021’s limits). 
• The total amount a business can spend before the deduction starts to decrease is $2.7 million.

The above is simple: it means you can deduct the full price of qualifying new or used equipment, up to $1,080,000. And when you reach a total of $2.7 million spent, the deduction then decreases on a dollar for dollar basis. Most small businesses will never get near that amount spent, so this is really big. It means pretty much anything you buy for your business can be deducted 100% (almost all tangible business equipment, new or used, qualifies). 

Financing Increases Your Leverage

I’ve mentioned this “business hack” previously, but it’s well worth repeating. If you finance section 179 equipment, you will likely save more on your taxes than the total amount of your payments this year. 

Here’s an example: say you finance a piece of $100k equipment this summer. You deduct the entire thing at year’s end. At a 35% tax rate, that’s $35k off your taxes – that’s real money that stays in your bank account.

From summer to the end of the year, let’s say you pay approximately $12k in finance payments for this equipment. So you saved $35k in taxes, and paid out $12k in payments. Your net saved is $23k.   

That means the equipment technically cost you nothing this year. PLUS it made your bank account $23k larger. AND you got to use the equipment to hopefully make more revenue. Yes, this is real. 

Can you see why I love Section 179 so much, and why so many businesses use it? I never fail to bring up Section 179 when I’m talking to a business. It’s simply the best tax deduction imaginable, and it’s one every business should use every year.

Most of you would say $5,000 right now, which is the correct answer. There are a lot of reasons why most people feel this is the correct answer. One reason being $5k now gives you more options today; another reason is we have no idea where we’ll be in five years, so take the $5k now.

But to me, the best reason is TVM, otherwise known as the Time Value of Money. In plain terms, the theory is money today is always worth more than the same amount of money tomorrow.

The primary reason for this isn’t based on complicated economics or the value of the dollar or whatnot – it’s simply due to compounding periods. Giving me $5,000 now theoretically allows that $5,000 to grow upon itself. So if I had a time machine, I could jump forward a few years and see that my “past” $5,000 is worth more than “right now” $5,000.

**Full disclosure – If I had a time machine, I would not be using it to check my bank balance. I’m not that boring. 

So let’s talk about money now as opposed to money later for businesses. The best example I could give you is taking a full Section 179 deduction, as opposed to yearly depreciation.** Taking a deduction on the full purchase price of equipment right now allows you to put that sum to work for you. The money you save/keep is going to be worth more than a like amount years from now. And it’ll be worth more than a little at a time for years. 

This goes double when you finance a Section 179 purchase. You get the deduction, and you also keep the money the equipment would have cost you in the bank, and instead make payments. TVM works for you here too.

Give me the money now as opposed to later. Section 179 does exactly that. And TVM makes it even better.** Note: of course, always discuss with your accountant or tax professional.

It makes more sense than ever to take advantage of Section 179. All you have to do is read my past few blog posts – there you find talk of rate increases, record inflation, increased lead times, and even used equipment costing more. 

All of these things mean a company has more overhead. Yes, the cost of doing business always seems to go up no matter what industry you are in, but right now, the increase is abnormal. So this makes Section 179 more important than ever.

It helps greatly that Section 179 got a robust increase in 2022 – $1,080,000 – that’s up 30k from 2021. But even if you never approach those limits, deducting the full cost of eligible new (or used) equipment is extremely beneficial.

Quick math: at a 35% tax rate, writing off a $50,000 piece of equipment will save you $17,500 in taxes. These are real dollars that stay in your bank account.

Ok, now let’s talk financing. When you finance equipment and take a Section 179 deduction, it’s extremely beneficial to your bottom line. Let’s look at this more in-depth using our $17,500 number.

Say you financed that $50k piece of equipment. Let’s assume a monthly payment of $950. You take that $17,500 you are saving, and divide it by $950… that gives us 18.4… that’s how many months your tax savings will pay your loan payment.

In other words, just because you took the Section 179 deduction, you are literally using that financed equipment for free for the first 18 and a half months of the loan.  And hopefully you are using that equipment to make MORE revenue, so it’s a win all around. 

Section 179 and equipment financing is extremely powerful. But it has never been as important as it is here in 2022. Make sure you take advantage of it. 

Now, all year I’ve been harping on the effect supply chain delays will have on Section 179 and its “midnight 12/31” deadline. As it stands, there are definitely items you will not get by the deadline. So let’s instead focus on what you CAN do.

Here are three “no supply chain issue” ways you can use Section 179 for 2021, even at this late hour:

1. Buy (or Finance) Eligible Software

A Section 179 deduction can be taken for common “off the shelf” software (this means non-custom, non-modified software). But in 2021, “off the shelf” means downloadable, SAAS, etc. This can include ERP systems, CRM software, and more. As always, ask your tax professional, but it’s a good bet that the software you need is eligible, and you can have it purchased and running in an hour. 

2. Buy (or Finance) Used Equipment

Used / preowned equipment doesn’t need to be manufactured. In many cases, it doesn’t have far to be delivered. There’s a good chance you can wake up Thursday Dec 30^th, and decide “I need that used widget I saw for sale a few miles away”. If you want Section 179 Financing for the used equipment, you contact us, and we get you approved that same day. You get the equipment Friday the 31st, start it up, and even do a small job with it that afternoon. And you then get your Section 179 deduction for 2021. How cool is that? 

3. Hit the Store

We’re not talking huge dollar amounts here, but you could do worse than hitting a retailer or two and loading up a few carts with eligible items your business needs (most tangible equipment your business needs will qualify for the tax deduction.) No waiting, no muss, no fuss. 

There you go – three ways you can still use Section 179 and not worry about supply chain issues.

Have a great holiday everyone – we’ll see you in 2022.

1. A Nice Increase for Section 179

Section 179 was made permanent a few years ago, and it’s received small annual increases since (this year it’s $1,050,000, up 10K from 2020’s $1,040,000). Ok, a 10k a year increase always helps, but it’s small when compared to the “million dollars” the deduction is. I’d like to see an increase with another zero. And maybe a crooked number in front. It’ll help spur business spending.

2. Inflation Going Away

I’m reading the consumer Price Index rose 6.2 percent in October from a year earlier. That’s the biggest increase since the 90’s. I’d like it to stop please.

I feel it will, simply because I suspect a lot of price increases are more for coping with the aftermath of pandemic shutdowns than anything else. Supply chain disruptions, labor shortages – they all created more demand than supply, which means prices must increase. But I already “feel” it – we’re hitting our new norm, and prices should stabilize. That’s my hope, anyway.

3. Businesses Further Innovating

Here’s an excellent example of the pandemic making businesses innovate and take advantage of technology: almost all hotels now have “touchless” check-in and check-out. The pandemic forced them into this, but as a consumer, I love it, and wonder why they didn’t do this sooner. I really like not waiting to check out, and just dropping my keycard in box at the desk. 

This is better for the hotel too – now the clerk doesn’t have to spend time checking people out. They had access to this technology years ago, but it took the pandemic to make this win/win scenario a thing. Here’s hoping more companies start taking advantage of technology (and hey, let me remind you that Software Financing is a thing). 

4. Fletch wants a PlayStation 5

Yes, I am a big kid, and I want a PlayStation 5. I’m pretty sure I’m not getting one this year, as they are super scarce. But I’ll still mention it, as that’s the “wish” part of the wish list.

All in all, I’m always optimistic about the future, but even more so right now. As a country (and a planet) we’ve taken some big, disrupting hits, and while some businesses were negatively affected, strong companies are surviving. The best is definitely yet to come.  

One thing that is sure to remain is companies rushing to get a Section 179 purchase or three in before the deadline. And as I’ve written in the past, that could be spotty depending on what you are buying.

** For those who don’t know, Section 179 is a business tax deduction that allows you to write off the full price of eligible equipment, up to a little over one million dollars. It’s a big deal.  

Remember the deadline requirements with Section 179 – your eligible purchase must be bought and put into service by midnight 12/31. That second part (put into service) could trip some companies up. 

The post-pandemic supply chain crunch is very real and is affecting countless industries. The domino effect is strong as well – even if you think your industry isn’t directly affected, a hard-to-get computer chip might be required to make the widget your industry relies on. Or your non-affected goods might sit in the container at the port weeks longer than usual. You’ll get it, eventually, but maybe past the deadline? Nobody is immune.

There are two suggestions if you are reading this now (November 2021) and still haven’t bought your Section 179 eligible purchases for the year:

1. If you can be guaranteed delivery by 12/31, buy it right now. As in today, not tomorrow. If you are paying cash, great, go do it. If you are financing, get your financing lined up immediately (hint: we can help). Getting it now can make a big difference in delivery. 12/31 is coming fast.

2. If delivery by 12/31 is iffy, maybe consider used? A preowned piece of equipment has the advantage of being right here, right now. If that works for you, definitely consider it. 

You can also wait until next year, but that doesn’t help your 2021 either. And for many companies, 2021 isn’t going to be slotted into the “our best years” list, so getting a nice tax deduction at the end is desirable. 

Section 179 is ready and waiting. Use it.

*For those who don’t know, Section 179 allows businesses to write off the full price of qualifying equipment (which is almost anything a business can use), up to a little over $1 million dollars. It’s good for any qualifying equipment purchased and put in service during the tax year.

One reason I mention Section 179 so often is sooo many companies do not know about this tax deduction. Believe me when I tell you, eyes are opened wide when we explain it. The conversation usually goes like this:

Wait, you’re telling me I can write off the entire $50k of this purchase? That means (does math) I will save $17,500 in taxes. Is that true? 

Yes, that’s absolutely true (the above assumes a 35% tax rate). 

So my question to you is this: if you sell to businesses, are you telling every single customer about this? And if you aren’t, why not? Because I’ll bet anything a good number of them are NOT aware of this. 

Telling a prospective customer they can write off the entire price (thus knocking whatever their tax rate is right off the true cost) can very quickly turn a “no” or “maybe later” into a full-on “yes”. Any good salesperson will salivate when told a customer doesn’t know about Section 179. 

Here in 2021, there’s an added incentive: as I’ve been mentioning time and time again, supply chain delays will have an effect on Section 179 – you need to get the equipment and put it into service. So having equipment in stock and ready to ship is a HUGE selling point.

If you sell to businesses, and have stock ready to ship, I can think of no better incentive than making prospective customers aware of Section 179, and you can get them their equipment in time to take advantage of it. 

Section 179 is a great sales tool. Use it.

The pandemic is still hanging in there, but we’re moving forward to some sense of “normality”. But this normal is indeed a “new” one.

Regardless of where the economy is going (and we’re quite optimistic here), it’s clear that on the whole, everything is going to cost more for the foreseeable future. 

There are many factors causing this: shortages of raw materials, shipping disruptions, a rapidly-changing labor market, and other pandemic-related factors. But (and this is good news) demand across most industries has held steady. The supply is a problem, whether that supply is goods or people to build/move them. 

And it’s simple economics that when there’s ample demand with a limited supply, prices must rise. This includes the price of goods (both new and used), as well as the cost to borrow (i.e., interest rates.)

Waiting is Costly

What this means for businesses is obvious. Waiting to buy needed equipment, be it vehicles, machines, software, servers, or anything else, means you will absolutely pay more than if you bought it right now. 

The cost of the equipment itself will be higher (both new and used). And rates will be higher too. So whether you’re paying cash or financing, waiting is costly. 

No matter what it is you are looking to buy, right now is the lowest price you are going to see, and likely the lowest rate as well.

Locking in with fixed-rate financing is easily the best way to protect yourself from paying more than you should. Again, this is simple economics.

I know, there’s an elephant in this room. I can hear it now: “Chris, you work for an equipment financing company. Of course you’re saying to finance now.”

Well, yea. But is anything I’m pointing out inaccurate? Do you truly feel prices on anything are going to drop? If you think they are, then I have a bridge to sell you (note: act now, as the price of that is going up too.)

Seriously, the die has been cast. We can argue as to the causes, but the fact is, this is our business climate, and smart companies don’t complain – they act. 

I’m writing this in September of 2021, and I strongly feel that whenever you are reading this – be it now or three years from now – today will be the lowest price and rate you will see on whatever it is you want to buy.

Despite this, I am very bullish on the future. Demand for almost everything remains extremely strong. The smart companies will do fine. 

Again, financing equipment you need (or are going to need) right now is your best hedge against rising prices and rates. Locking in is a sound strategy. 

Curious if you can be pre-qualified? We can do that in two minutes right here.

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