A Guide to Utilizing Section 179 for Equipment Purchases

Nov 1, 2021 | Finance, Growing Your Business

A Guide to Utilizing Section 179 for Equipment Purchases

How You Should Use Your Section 179 Deduction

Did you know Section 179 can finance your business vehicles and equipment? This specific tax code can also assist you in saving on taxes while boosting cash flow. As a small or medium business owner, you may have already heard of Section 179 of the IRS Tax Code. If you haven’t heard of it, Section 179 is a government tax incentive for purchasing business equipment and vehicles. This incentive is made specifically available to small and medium-sized businesses. That means that almost all types of business vehicles and equipment qualify for a 179 deduction.

What is Section 179?

Section 179 allows you to deduct the entire purchase price of any qualifying equipment, software, and vehicles that you have purchased for your business during the tax year. The Section 179 deduction can be taken no matter what method of payment you use for the purchase. 

Yes, you heard that right, whether you pay cash or finance (including leases), you deduct every penny from your taxable income. Every. Single. Penny. This incentive is designed to encourage businesses to invest in equipment to support growth in the economy.

How You Can Save Taxes When You Use Section 179 for Equipment

Here at Aztec Financial, we are being asked all the time about this great tax incentive. Most of our clients are able to take advantage of the savings that come with a 179 deduction. You might be wondering how this works exactly. An example of this is if you’re using Section 179 for equipment, the products would need to be purchased within the 2021 tax year to use the deduction for this current year’s taxes. Due to this, we have seen a recent increase in requests for information. We want to help you take full advantage of your Section 179 deduction, so we have made this convenient guide to navigating this tax code. However, remember to check with your tax preparer as this is general information.

How Does Section 179 Work?

Any business owner can elect IRS Code Section 179 to replace the normal depreciation write-off process. Previously, the code used to state that when you bought business equipment or vehicles, these purchases had to be written off slightly each year as the product aged. Until Section 179 replaced the previous code and changed that. Now, if you purchase (including finance or lease) business equipment, you are eligible to subtract the price from your gross income in the same tax year. Essentially, Section 179 treats your business capital expenditures as if they were expenses.

The change to Section 179 makes a huge impact on the cash flow of small and medium-sized businesses. How large of an impact does it make? If you were to purchase up to $1 million of new or used equipment and vehicles before December 31, 2021, your 2021 business income is reduced by that full amount. As we said earlier, the Section 179 deduction really does deduct every single penny from your taxable income. In other words, it’s a big deal.

How Can Your Business Qualify for a Section 179 Deduction?

Section 179 may sound too good to be true, but we assure you, it’s not. However, there are just a few stipulations in taking advantage of this incredible write-off. Your business may qualify for the Section 179 deduction if:

 

  • A verified purchase is made during the tax year (before December 31, 2021, for the calendar year taxpayers).
  • The equipment or vehicle is for use in the business.
  • Must be used at least 50% for business purposes.
  • The equipment or vehicle is put into service by December 31, 2021.

How does IRS Code Section 179 Combine With Equipment Financing to Boost Your Cash Flow?

Subsequently, your cash flow gets a boost from Section 179 when you finance your equipment and vehicles. By using Section 179 for equipment, you can keep money in your pocket for other expenses (like payroll and consumables) when you finance the equipment. Though it sounds too good to be true, you then get to keep even more money when you reduce your tax liability with a Section 179 deduction. So, what is the top benefit of combining Section 179 with equipment financing? 

  • Save cash by financing the equipment or vehicle
  • Reduce your tax liability

Is that double dipping? Honestly, it kind of is! However, that is the bonus of Section 179. When you finance your purchase and take a Section 179 deduction, you can substantially increase your cash flow with a simple vehicle or equipment purchase.

Section 179 is Meant For Small and Medium-Sized Businesses

Section 179 of the IRS Tax Code is an incredible incentive for small and medium-sized businesses. The government is encouraging business owners to invest in additional equipment before December 31, 2021, and gives the businesses an exceptional incentive to take advantage of the 179 deductions. The proof of how incredible this incentive is can be seen through the tax savings, and are significant enough that many businesses are taking action.

Use Section 179 for Equipment, and Enjoy the Benefits

As the year is quickly coming to a close, now is the time to take advantage of the Section 179 deduction. With a significant return, Section 179 is clearly designed to work for small and medium-sized businesses. Receive back every single penny you spend, and put that money directly back into your business. As long as your business qualifies for the 179 deductions, taking advantage of this incredible tax code should be a no-brainer.

Finance equipment with Aztec Financial before December 31, 2021, and you can take advantage of the tax savings from Section 179. Easily boost your cash flow and grow your business now with Section 179 of the IRS Tax Code. Call us today for more information on our equipment financing process and how we can help you expand your business!

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