I can hear you saying “But Fletch, nobody talks about Section 179 early in the year. In fact, I never even think about it until the fourth quarter when I’m scrambling to get my equipment purchases in to make the deadline.”

And that’s exactly my point. Using Section 179 earlier in the year makes a ton of sense. Let me list a few reasons why:

You LOCK IN Your Tax Deduction

I’ve known companies who held off on a Section 179 purchase, opting to wait until later in the year. Then, for whatever reason, the purchase never happened, and they missed the deduction. Now maybe the reason was that the equipment delivery timeframes were too long to make it by year-end. But usually it was something minor, and acquiring new equipment got pushed a bit because it was another “thing” on the list. 

Making your Section 179 purchases early in the year guarantees you will get the deduction. If you plan to acquire eligible equipment this year, and you can acquire that equipment now, then you probably should. 

The Equipment Earns Revenue

In most cases, a Section 179 purchase is tied to earning revenue. Machinery,  vehicles, technology… these all earn revenue, most of them from the day you put it into service.  Having more months of revenue producing equipment at your disposal has no downside. You’ll still get the deduction, and you had the advantage of the equipment working for you all year. Not a bad deal. 

Not Rushing to Buy = Better Equipment Choices

When you are rushing to beat the deadline late in the year, your equipment options may be limited. Did you really want the bare bones model in “Mud Brown”? No? Then why did you wait? Because that’s all the dealer has left, and there’s no time left to order a different one. Take it or leave it. 

Note: they probably had 50 of them back in March. With all kinds of helpful options… in “Midnight Blue” no less! 

Wrapping Up

Section 179 is good on purchases made all year. But there are definite advantages to using Section 179 early in the year. You guarantee you’ll get the deduction, you can earn more revenue, and the selection is probably a lot better, especially since you’re not in a rush to buy.  

If you need it, get it. That’s my take! 

I’ve been on a pretty good roll – AI was the buzzword for 2023 just like I thought it would be, and I hit on one sports pick too. And rates pretty much did what I predicted as well. Now onto 2024. 

Sports first: for football, let’s go with a rematch of a super bowl of my youth: San Francisco 49ers vs. the Miami Dolphins. It’s not Dan Marino vs Joe Montana this time, but it should be fun. And in a reversal of last time, a Miami win!

*Note that I do write these a little ahead of time, so I hope both are still alive when this publishes!

In Baseball, I picked the Braves last year, and they rewarded me with a great regular season that crashed and burned in the playoffs. But not this year – this year our locals take it! For an American league finalist, let’s go with the Baltimore Orioles to take the next step and make the world series.   

Basketball… I hit with Denver last year, but this year I am going old school Celtics. They’ll beat Denver (who makes it to the finals again.) 

Hockey – the hardest to predict. The NY Rangers look mighty strong though, so that’s my pick. Let’s go with them vs the Vancouver Canucks in another old-time rematch.

Ok, onto economics: Rates are going to start to come down in 2024. How many rate cuts remain to be seen. The Federal reserve has said perhaps three, but I’m going to put a little caution there and say two. Last spring and mid-autumn.

I also expect the US economy to be fairly stable, assuming world events don’t get out of hand. I also think our presidential election in November to take a week to resolve. That seems to be the way moving forward. Hopefully you’re happy with the result! 

Ok, enough politics – onto more fun stuff. AI is going to continue to dominate, as it changes everything. We’re already seeing this in search engine results. I do expect a little pushback though as we become increasingly uncomfortable with certain aspects of it. For example, I just saw a new AI technology from NVidia that makes it so your eyes are always looking at the camera during a video call. Yea, neat… but also not real. So are we ok with what we are seeing not being real? It’s a weird area for sure. But I do expect the “fun and useful” parts of AI to be more prevalent than the creepy ones. 

We’ll also start to see AI combined with robotics, which will reshape entire industries. I was talking with a friend who paints houses, and he mentioned how hard steep roofs can make painting.  Then he said “I can’t wait to buy an AI controlled drone to do it”. It doesn’t exist yet, but he expects it to come. Maybe not this year, but we’ll start seeing things like that more and more.    

I’m pretty optimistic about 2024, and I hope you are too. If you look at how things truly are, and not how they are portrayed on social media, there’s a LOT to like. 

Bye 2023 – it was real. Hello 2024. Let’s do this.

Honestly, I feel bad for Section 179, because all I’m seeing in the news is inflation and rates. I hear about how everything costs more. But I never hear about the single best business incentive ever invented: our friend Section 179.

But it’s still here in 2022, and it’s better than ever. Here are a few numbers for you:

• The deduction is a robust $1,080,000. That’s one million, eighty thousand dollars (up 30k from 2021’s limits). 
• The total amount a business can spend before the deduction starts to decrease is $2.7 million.

The above is simple: it means you can deduct the full price of qualifying new or used equipment, up to $1,080,000. And when you reach a total of $2.7 million spent, the deduction then decreases on a dollar for dollar basis. Most small businesses will never get near that amount spent, so this is really big. It means pretty much anything you buy for your business can be deducted 100% (almost all tangible business equipment, new or used, qualifies). 

Financing Increases Your Leverage

I’ve mentioned this “business hack” previously, but it’s well worth repeating. If you finance section 179 equipment, you will likely save more on your taxes than the total amount of your payments this year. 

Here’s an example: say you finance a piece of $100k equipment this summer. You deduct the entire thing at year’s end. At a 35% tax rate, that’s $35k off your taxes – that’s real money that stays in your bank account.

From summer to the end of the year, let’s say you pay approximately $12k in finance payments for this equipment. So you saved $35k in taxes, and paid out $12k in payments. Your net saved is $23k.   

That means the equipment technically cost you nothing this year. PLUS it made your bank account $23k larger. AND you got to use the equipment to hopefully make more revenue. Yes, this is real. 

Can you see why I love Section 179 so much, and why so many businesses use it? I never fail to bring up Section 179 when I’m talking to a business. It’s simply the best tax deduction imaginable, and it’s one every business should use every year.

Here’s one thing that’s “normal” – Fletch’s annual predictions. So let’s get to it, starting with the important stuff: sports. 

Sigh… there was a time when I predicted Super Bowls and other Championships with a clairvoyant’s accuracy. So maybe getting back to normal means I get a winner or two in 2022.

Football: The Tennessee Titans finally get their championship after falling a yard short the last time they were in the big game. At this writing, Derrick Henry seems poised to return, so watching him run over everyone will be fun.

Basketball: Do we go against Steph Curry? We do not. Golden State for the title. 

Hockey: Easily the hardest sport to predict these days, as there are truly no dominant teams. Oddly enough, many of the top teams are in the south. Tampa Bay Lightning is being whispered in my ear, so let’s go there.

Baseball: I picked the Mets last year, and that was a disaster. But I’m going to do it again. Some new players, a new “Old School” manager who is due for a title… Amazin’! (note: I am happy the hometown Braves won it last year, but I’m not picking them because nobody repeats anymore).

Now let’s talk about business and the economy. 2021 was the year of supply chain issues and inflation, and it affected everyone. Some businesses adapted better than others, and there was a touch of random luck thrown in too – for example, if you had two identical businesses, but one was able to get a crucial shipment of parts because they ordered one day earlier… well, that could be the key difference in success or failure.  

I feel like supply chain issues will ease up as the year moves on, for two reasons: the “Covid is here to stay and we have to live with it” mindset taking hold more, and an adjustment in end user expectations. In other words, we now know that computer (et al) is going to take longer, and that knowledge will factor into our operations. Hence, we won’t be caught by surprise anymore.  

Inflation will be a thing, and rates will rise periodically to combat it. I don’t see any way out of that in the near future. It may sound self-serving, but if you were thinking of financing equipment, all else being equal, you’re probably going to see a lower equipment financing monthly payment earlier in the year as opposed to later. 

Additionally, if you aren’t already, offering equipment financing for your customers is a very smart move that costs you exactly zero. 

More money news: Section 179 is exciting this year – it got a nice $30k bump, all the way up to $1,080,000. Definitely use it, as there’s no better business tax deduction for small and mid-sized companies.

I was bullish on 3D printing a few years ago, and while Covid has put the brakes on a lot of technology, I still feel this is going to be a huge aspect of our lives sooner rather than later. Within the next decade, I can see every company having a 3D printer onsite, as well as every household. 

Same with Virtual Reality (VR). I actually watched a concert virtually, and it was pretty neat. Once we get to the point where VR is a comfy pair of glasses instead of a big headset, the sky is the limit.   

All in all, this will be a leveling-off year with upside. The last two years have been tumultuous, but we’ve likely seen the worst of it, and as a society, we’re still here. It’s time to work with what we have to get where we want to go.

For most industries, 2022 is going to be a better year. So says Fletch!

The pandemic is still hanging in there, but we’re moving forward to some sense of “normality”. But this normal is indeed a “new” one.

Regardless of where the economy is going (and we’re quite optimistic here), it’s clear that on the whole, everything is going to cost more for the foreseeable future. 

There are many factors causing this: shortages of raw materials, shipping disruptions, a rapidly-changing labor market, and other pandemic-related factors. But (and this is good news) demand across most industries has held steady. The supply is a problem, whether that supply is goods or people to build/move them. 

And it’s simple economics that when there’s ample demand with a limited supply, prices must rise. This includes the price of goods (both new and used), as well as the cost to borrow (i.e., interest rates.)

Waiting is Costly

What this means for businesses is obvious. Waiting to buy needed equipment, be it vehicles, machines, software, servers, or anything else, means you will absolutely pay more than if you bought it right now. 

The cost of the equipment itself will be higher (both new and used). And rates will be higher too. So whether you’re paying cash or financing, waiting is costly. 

No matter what it is you are looking to buy, right now is the lowest price you are going to see, and likely the lowest rate as well.

Locking in with fixed-rate financing is easily the best way to protect yourself from paying more than you should. Again, this is simple economics.

I know, there’s an elephant in this room. I can hear it now: “Chris, you work for an equipment financing company. Of course you’re saying to finance now.”

Well, yea. But is anything I’m pointing out inaccurate? Do you truly feel prices on anything are going to drop? If you think they are, then I have a bridge to sell you (note: act now, as the price of that is going up too.)

Seriously, the die has been cast. We can argue as to the causes, but the fact is, this is our business climate, and smart companies don’t complain – they act. 

I’m writing this in September of 2021, and I strongly feel that whenever you are reading this – be it now or three years from now – today will be the lowest price and rate you will see on whatever it is you want to buy.

Despite this, I am very bullish on the future. Demand for almost everything remains extremely strong. The smart companies will do fine. 

Again, financing equipment you need (or are going to need) right now is your best hedge against rising prices and rates. Locking in is a sound strategy. 

Curious if you can be pre-qualified? We can do that in two minutes right here.

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Section 179 doesn’t care if you’re a sole proprietor, a partnership, or a corporation. It doesn’t care if you’re on Main Street or Wall Street. It doesn’t care if you have nine buildings and 10,000 employees, or if you’re a classic small business with one location and a handful of employees.

Here’s what you need to qualify for Section 179:

Be a Real Business. This means you’re a registered business, with a business bank account. 

Show a Profit. Since Section 179 reduces a company’s taxable income, the company must have taxable income in the first place. Also note that Section 179 cannot be used to “create” a loss. 

Buy / Finance Eligible Equipment and Put it into Service. Pretty self-explanatory here. You have to buy eligible equipment (which, honestly, is just about any tangible equipment you use in your business), and start using it by the deadline (always midnight Dec 31 of the current year).

And that’s it. 

I got on this topic again because my commercial landscaper friend told me he couldn’t fully deduct several new zero-turn mowers, and instead had to depreciate them yearly – basically, he said “only big businesses get the big write-offs”. I asked him why he thought that, and he really couldn’t answer me – he just assumed that a small business like his couldn’t fully deduct equipment purchases. Not true at all.  Trust me, I set him straight.  

It always amazes me how many businesspeople either haven’t heard of Section 179, or if they have, think it isn’t for them. I’m also somewhat amazed that their accountants aren’t mentioning it. Maybe they feel the client needs to ask about it, or they assume the client would rather have a smaller yearly write-off? I don’t know all the answers there, but I do know almost everyone who “didn’t” know about Section 179 is super enthused once they learn that yes, it’s for them too. 

Bottom line: As long as there’s taxable income and eligible equipment purchased for business use, Section 179 is there to be used. So use it.  

The first point I want to make is the one overriding factor that any business needs to determine is their goals for a lease first, then they should choose a lease that best meets their needs.

There are really two “main-yet-different” goals for any lease: either you are leasing equipment to take advantage of the benefits of “ownership” (like Section 179), or you are leasing to “not own” the equipment, thus keeping the equipment off the balance sheet as an asset and instead listing the lease payments as an expense. 

First let’s take a look at how Tax Accounting (e.g., the IRS) views leasing. They will look at any lease one of two ways: a True Tax Lease (also called a True Lease), and a Non-Tax Lease. A True Lease means the lessee (the company using the equipment) is NOT the owner of the equipment. In a Non-Tax Lease, the lessee is considered the owner. 

So if you want to not own the equipment and keep it off the balance sheet as an asset and instead expense the lease payments, choose a True Lease. If you want to be considered the owner and take a Section 179 deduction, choose a Non-Tax Lease.

Now since this post is about leasing and taxes, I ought to stop right there, because that’s all you really need to know. But I’m a little OCD and want to finish, so let’s take a look at how Book Accounting views leasing.

Book Accounting leases are classified as either an Operating Lease or a Capital Lease. In an Operating Lease, the equipment is viewed as a rental – it’s neither an asset or a liability on the balance sheet. A Capital Lease is generally viewed as ownership.

These all seem similar, right? But “book accounting” and “tax accounting” don’t always see eye to eye on lease types. For example, a True Lease doesn’t always qualify as an Operating Lease, but an Operating Lease always qualifies as a True Lease.

I won’t go any further than that, because it’ll get into things that we all need to discuss with our CPA’s, not an equipment finance guru’s blog! And this is why I said earlier “pick your goal first, then pick a lease”, and we’ll get more into that next time. 

[As always, this is not intended to be tax advice – always consult your tax adviser for details specific to your situation.]

So I’d like a re-do. Here we go:

I won’t predict sports winners, because at this writing, nobody knows if anything will resume. I’m a big sports fan, and really want to see them come back in 2020, and while leagues keep talking about it, two things are in the back of my mind: What happens if a player tests positive? Does the entire team have to quarantine? What does that do to competitive balance and the schedule? 

But assuming they do play, my second question bugs me more: without fans in the stands, will it be the same? Part of me says “no”. So we’ll have to see.

Now, I don’t want to sound like a downer, so let’s look at the upside. 

Let’s say sports take a breather for 2020. I feel there will be openings for other types of entertainment. There are a slew of movies we haven’t seen, the videogame industry is thriving, and even things like board games may be making a comeback. I know a few people who play classic board games virtually through Zoom. How about family yard games like cornhole? 

We can take this a step further: If we’re going to stay home more, how about a larger TV? Companies that make and sell home entertainment/recreation equipment are poised to do well. I know bicycle manufacturers and retailers are as busy as they ever were right now.  

Just when you thought desktop computers have left our homes, they are going to come roaring back as “the office” starts to become a thing of the past, and “the home office” takes off. This also bodes well for manufacturers of home office furniture, and even home center retailers and contractors as remodeling will likely see a boom as well. 

Will the gym ever be the same? We don’t know, but I do know home exercise equipment is booming. We will also likely see some good innovation here, as virtual trainers become more and more popular. Step on the mat, the trainer appears live on your wall. That will be mainstream sooner than later.  

It’s very possible we are living in the biggest societal change event of our lifetimes. Industries will fall quickly, but other industries will rise just as quickly. Many companies will see this and shift (and that’s where equipment financing and Section 179 come in – you know I have to get those in there!) 

I can be a little pragmatic, but I feel that’s healthy. But in my pragmatism, I tend to see opportunity. And where there’s opportunity, there’s growth. 

I predict we’ll be ok. 

But sometimes, I get frustrated with how Section 179 is often presented. I’m a plain-language guy, and once something starts to sound too much like an advanced-level economics course, most people (including myself) tend to tune out.

So when I see Section 179 called an “accelerated depreciation schedule” like I did the other day, it makes me roll my eyes. 

Ok, technically, that’s what it is, because under “non-Section 179” circumstances, you depreciate a piece of equipment yearly until the value reaches zero. Section 179 lets you depreciate (aka write off) the entire purchase price right now. 

But calling it an “accelerated depreciation schedule” sounds like the title of a school assignment that you put off until the last minute. Can’t we find a better way to think about it?

Here’s how I like to present Section 179: It’s a discount on your purchase. 

Because you write off the entire purchase price as a deduction, the discount equals whatever your tax rate is. We can conservatively say 24%. But it can be 32% or even 37% – again, whatever your tax rate is, that’s your discount.

If you buy a 100k piece of equipment, you write off 100k on your taxes. At (say) a 24% rate, that means you save a cool 24k on your taxes.  These are real dollars that you get to keep (that you would have otherwise paid), so it’s exactly like getting a 24% discount.

Imagine this. You need a new widget. The new widget will greatly help your business. So you go to the widget-maker and negotiate a great price on a new widget. Then the widget-maker says “buy it now, and you’ll get another 24% off”.

You’d jump at that, wouldn’t you?

That’s Section 179 right there. It expires for 2019 on 12/31, meaning you have roughly two more months of it this year, so take advantage.

Actually, it goes one better than that – you have to have the equipment installed / put into use by then. So just “buying” the equipment isn’t enough – it has to be operational. This means (for example) a New Year’s Eve purchase of a new storage building with a Jan 2 delivery date won’t count. You need to get them to deliver it and get it ready to go by the stroke of 12.

In re-reading the above, it almost sounds like a harsh deadline – e.g., “do it by the stroke of midnight”. But really, it’s fair – we’ve had all year to take advantage of Section 179 and the higher rates 2012 offers. It’s just we’re nearing the end of the year, and time is running out.

So why is this year so important? Well, because Section 179 seems to be shrinking. A few years ago, we were enjoying fat deductions of 500k. But this year, the maximum allowable deduction is only $125k. That’s a large drop, isn’t it?

But if you think that’s bad, wait until next year, when it drops to a mere $25k. Ouch. And while I’m always hopeful for a midyear boost (which HAS happened before), the past few years of “shrinking” suggest perhaps the government isn’t comfortable with really high deductions for new equipment purchases.

So to take real advantage of Section 179, get in NOW. Unless, of course, you think the world is ending on 12/21/2012. If you think that, I would say “don’t bother”, and instead spend the money on a huge party. And make sure you invite me.