Have you ever wondered why many small business owners drive large SUVs? It’s not about projecting an imposing image or being environmentally indifferent. Rather, it boils down to a single reason: the IRS has made it financially advantageous via a provision called Section 179 of the US Tax Code.
Understanding Section 179
Section 179 is a lesser-known incentive in the US Tax Code designed to stimulate the economy by encouraging small businesses to make substantial equipment purchases.
How Does Section 179 Work?
Typically, when you buy certain pieces of equipment for your business, you get to depreciate them over time. For instance, if you spend $25,000 on a vehicle, you could write off $5,000 a year for five years (note: this is a hypothetical scenario).
However, many business owners would rather write off the entire purchase price of the equipment the year they buy it. This is precisely what Section 179 allows for eligible small and medium-sized businesses. Instead of taking a $5,000 deduction a year for five years, a business owner spending $25,000 on a new SUV can deduct the entire $25,000 in the year of purchase, significantly reducing the business’s tax bill.
Why Choose an SUV Over a Smaller Vehicle?
To benefit from Section 179, the equipment must meet specific criteria. For vehicles, one requirement is a gross vehicle weight (GVW) of over 6,000 lbs. Many larger SUVs meet this criterion, making them a popular choice for year-end purchases.
This ‘year-end’ buying trend aligns with when business owners are considering their taxes. If a business is expecting a tax bill, buying a new piece of equipment under Section 179 can substantially lower that tax bill, especially if the equipment is a high-ticket item like a vehicle.
Take Advantage of Section 179 Now
With the constant changes in the tax code, Section 179’s future is uncertain. Therefore, to reap the full benefits on this year’s tax return, it’s advantageous to acquire qualifying equipment before December 31st.
However, there are several boundaries regarding Section 179 (like a $125,000 limit on write-offs, a $500,000 cap on purchases, certain restrictions on vehicles), so ensure you understand the complete scope of the code before making your purchase.
More About Section 179
If you want to delve deeper into Section 179, visit IRS.gov, and consult with your tax advisor.