My wife even asked “are you ok, you don’t seem like yourself”, to which I replied “I’ve been ignoring Section 179”… ok, I’m kidding there. Old Fletch knows that wouldn’t be great dinner conversation. But it is true that I haven’t talked about Section 179 in awhile, so let’s do that.

In all that has happened this year, it’s easy to forget about great tax incentives like Section 179, but it’s still here, it’s still valid, and it’s bigger than ever, with an inflation-adjusted maximum deduction of $1,040,000 (that’s a cool million and forty thousand). The maximum equipment purchase is sitting at $2,590,000. Those are nice big numbers that all small businesses can be happy about. 

For small and medium businesses, this can be very attractive for 2020. Many businesses have had to retool and purchase equipment they didn’t count on purchasing. Think about things like plexiglass dividers for retail counters, maybe outdoor seating and furniture, or retrofitting the office to spread things out. 

Some businesses are even buying their workers office equipment to use at home – desks, computers, printers, etc. These are Section 179 eligible (check with your accountant of course, to see the percentages. In other words, if a company buys an employee a new computer, but it will be 25% personal use, there may be an adjustment in the deduction.)

Like all entities, the IRS has offices running on smaller crews and such, but they are still operating, and Section 179 is an unmovable part of the tax code. So it’s here for all of 2020 and beyond. Plus, it’s not affected by any other government assistance or program – for example, if you got a PPP loan, that does not affect your Section 179 deduction. 

2020 has been a strange year so far. But Section 179 is as strong and “normal” as ever. And that’s reassuring, isn’t it? 

Not that you haven’t noticed, but the cold weather is long gone, and we’re on the brink of summer. In short, the year is half over already. Have you thought about Section 179 yet? Because you really should. Here’s why:

• The Section 179 deduction is still high, but not for long – As of right now, Section 179’s deduction limit is a healthy $125,000. But that’s only going to be true for this year. Next year, it’s set to fall to $25,000. We don’t know what’s going to happen in the future, but I’ll tell you this – if it were me and I was thinking of taking advantage of this tax deduction, I’d do it now. And that brings me to my second point.
• Romney is on Obama’s mind… Obama is on Romney’s mind – This is an election year, and the players are all set. And while I can’t predict the future (despite my big super bowl hit… really, can you believe I actually predicted that?), I do suspect that increasing Section 179 for this year or next is probably the furthest thing from anyone’s mind right now. Waiting for an increase could be a pretty bad gamble. There’s an election to win, and that’s going to be the only game in town.

The fact that Section 179 hasn’t been increased yet is telling. It says that the limits we see right now could very well be the limits we are stuck with. So if you were thinking of adding more than $25,000 worth of equipment over the next year or two, 2012 is the year you should do it. At the minimum, plan your 2012 purchases so you can take full advantage of the six figure deduction we have right now – if it increases next year, you can always take advantage of that then. But at the least, you’re getting your full deduction for 2012. Just remember, the equipment has to be purchased and put into use by midnight 12/31/2012. I know that seems far away, but we all know it’s not (after all, wasn’t last New Year’s Eve seemingly just yesterday?)

Enjoy the nice weather folks. It’ll be winter before you know it.

Recently, I got the following in my inbox, and I thought it might be interesting to post it here, along with my reply (mind you, I asked for, and got, permission from the sender to post this.)

Dear Fletch,

Recently, you advocated financing equipment in 2008 because of the economic stimulus act of 2008 and section 179. You were advocating people purchasing equipment this year because they could write off the entire thing. But I feel that, in the interest of full disclosure, that you should also mention that for years two, three, and beyond, you do not get write-offs on the equipment in question, essentially making the savings a one year thing. Do you agree?

Sincerely,

Sam A

Dear Sam,

Thanks for your note.

Yes, you are correct in that the section 179 deduction is usually a one-year benefit. However, two things I want to mention on that: The first is that for this year, thanks to the Economic Stimulus Act of 2008, there is a bonus depreciation that kicks in after you reach the limits. So even on some equipment that will be depreciating (and not writing off the entire cost) there’s still incentive to finance equipment now.

Secondly, in regards to it being a one-year thing… well, so what if it is? I’m not sure it really makes any difference. Allow me to explain:

I don’t mention year two, three and beyond in my post because they don’t really matter in the sense of saving money on taxes this year. Look at it this way: you cannot deduct MORE than the price of the equipment, regardless of how you do it. Say something costs $50,000, if you elect to use the Section 179 deduction you deduct the entire $50,000 this year. If you elect to depreciate, you deduct $10,000 a year for five years. Either way, you are deducting $50,000. No more, no less.

That said, with all else being equal, wouldn’t you rather have the ENTIRE $50,000 RIGHT NOW as opposed to a little at a time? Because getting that sum right now allows you more choices in other matters financial. And, if you invest it, you can earn interest on it, making it grow (while with the five year depreciation plan, the government instead earns the interest on your deduction.)

So yes, the Section 179 deduction doesn’t give you anything extra, so to say, in terms of raw dollars it just allows you to keep more money NOW. But to me, that’s a pretty obvious benefit, so much so that I’m not sure that mentioning but remember, you don’t depreciate in year two is even necessary. I suppose it is because I do not see any downside to getting all the money now.

One last point on this, too. If you finance or lease equipment, the money you save on taxes this year could actually EXCEED the finance or lease payments you make. So the Section 179 deduction could actually make leasing equipment profitable for 2008 & I don’t know many CFO’s that will turn their nose up at that.

I thank you for the opportunity to clarify and expand my thoughts on this issue. In addition, I find this interesting enough that I’d like to post this discussion to the blog. that way your point will be up there for all to see. Would that be ok? Please let me know.

I wish you all the best.  Chris Fletcher