Section 179

By | October 23, 2007

Hello there! Let’s make your day a bit brighter by discussing a very special part of the US IRS Tax Code, Section 179. Yes, you read that right – tax code can be exciting, especially when it benefits your business! No need to go hunting for sections 1 through 178, we’ve got what you need right here.

Welcome to the second day of the 4th quarter rush! If you’re a newcomer, you might be wondering why the office seems to be in overdrive. Well, it’s all part of the seasonal rhythm of business. Equipment Sellers are hustling to move inventory for a strong year-end finish. And then, there’s another reason for the excitement – the tax benefits that come with financing at this time.

Let’s get technical for a moment: Section 179 of the United States Internal Revenue Code (26 U.S.C.179) empowers businesses to deduct the cost of certain types of property from their income taxes immediately. This usually applies to tangible personal property like equipment and vehicles, but not buildings. Anything that doesn’t qualify for a section 179 deduction can still be deducted over several years through MACRS depreciation.

Let’s break this down with an example: Say you make a purchase worth $125,000.

  • 1st Year Write Off: $112,000 (This 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)

Let’s translate this into real-world terms: You get to write off up to $108,000 of the equipment cost in the year you purchase it. How cool is that?

A simplified example:

Imagine you buy equipment worth $125,000.

*IRS magic happens*

You end up saving $ 40,000 on your taxes! That’s a win in our books!

Now, how do you feel about that???