Section 179 and Financing – Updated for Autumn 2020

By | October 8, 2020

We’re hitting the 4th quarter of the strangest year ever. Yes, 2020 has been a wild ride to say the least, but we’re still here (as are you). So let’s talk about something that’s also still here: Section 179 and equipment financing.

2020 section 179 financing

I talk about this every year, because I get really excited about it. We’re in that time of year where it’s actually profitable to finance equipment and take the Section 179 Deduction. Here’s what I mean:

You buy equipment and finance it with us. Let’s say it’s $50k. 

You take the full $50k as a Section 179 Deduction.

At a 35% tax rate, that $50k deduction translates into $17,500 saved on your taxes. These are actual dollars that stay in your account instead of going to the IRS. In other words, if you *didn’t* buy the equipment, you’d be paying the IRS $17,500 more.

So ok, you have an extra $17,500 in your account. And since you financed the equipment, you’re only making a payment or two for the rest of 2020. Let’s say those two payments total $2,400. If we subtract that from the $17,500, we get $15,100.

So the bottom line is this: in 2020, you A) got a new (or new to you) piece of equipment you needed, and B) have an extra $15k in your bank account for doing so. 

All of a sudden, 2020 is looking better and better, huh?

You can look at Section 179 a few ways. Had you paid cash for the equipment, you’ll still get the $17,500, but you laid out the full $50k. You can look at the $17,500 as a discount (meaning you really only paid $32,500 for the equipment).  

But in my example here, by financing the equipment, you actually have $15k MORE in your bank account than if you did nothing. And you know what? That $15k will probably cover all of next year’s payments too. And, of course, in all this time of the payments being covered, you are using the equipment to grow your business. 

When finance guys talk about “leverage”, they typically mean things like this.

So yes, you too can end 2020 on a great note. Get something you need. Finance it. Then take that sweet Section 179 Deduction (you can deduct up to $1,040,000 for 2020 – that’s a million, forty thousand.) Just make sure you have the equipment installed and in service by midnight, 12/31/2020.

Happy shopping!  

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