One more reason to finance equipment in 2022 is my old favorite, Section 179.
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.