The growth of small to medium-sized businesses (SMBs) often requires upfront investments in technology and equipment.
But what if you could save significant amounts of money on the costs associated with these large-scale purchases?
One way to save on office equipment, such as printers or copiers, and large-scale wide format printers, is to use the tax advantage of the IRS Section 179 deduction. This tax advantage allows eligible small businesses to receive significant savings at tax time by deducting qualifying business equipment and software. These savings will make purchasing equipment more affordable in 2023.
Before learning how your organization can benefit, let's discuss what Section 179 is and the general requirements.
What is Section 179?
Many people believe the Section 179 tax code is complicated. However, this thinking could lead to missing out on potential savings and benefits for your organization. The Section 179 tax code is relatively simple to understand and encourages SMBs to reinvest in their growth.
The Section 179 Deduction is a tax incentive that allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. This means if you buy (or lease) a piece of qualifying equipment, you can deduct the full purchase price from your gross income.
In 2023 (taxes filed in 2024), the Section 179 deduction limit for qualifying purchases is $1,160,000. The deduction limit refers to the maximum amount that a business can deduct in a single tax year for the cost of qualifying equipment. This limit is designed to prevent larger businesses from gaining an unfair advantage by purchasing large amounts of equipment and claiming substantial tax deductions.
The phase-out threshold or spending cap for Section 179 is $2,890,000. The spending cap is the maximum amount a business can spend on equipment before the Section 179 Deduction available to them begins to be reduced on a dollar for dollar basis. Essentially, this means that the more a business spends on equipment, the less they can claim as a deduction under Section 179.
What Type of Property Qualifies for Section 179 Deduction?
Qualifying business property for Section 179 is defined as tangible, depreciable property that is acquired for business use. To qualify for the Section 179 deduction, property must meet certain requirements.
Eligible Property - This typically includes tangible property such as equipment purchased for use in a business, office furniture, business vehicles, and certain improvements to nonresidential real property. It can also include off-the-shelf computer software.
Acquisition - The property must be acquired by purchase or Section 179 Qualified Financing from an unrelated person. Property acquired by inheritance or from related parties such as siblings, spouses, parents, and charitable organizations does not qualify.
Business Use - The property must be used more than 50% of the time for business to qualify for the Section 179 Deduction. If the business property isn't used for conducting business 100% of the time, you can only take the business deduction for the percent (more than 50% required) that it is used for business. For example, if you purchase a new vehicle for business travel and only use the car 80% of the time for business travel, you can only deduct 80% of the total vehicle cost.
New or Used Property - New and preowned equipment may qualify for the deduction. However, the property must be put into service the same tax year the deduction is claimed.
How Can My Organization Benefit From Section 179?
There are many benefits of using the business tax deduction of Section 179. By investing in new or pre-owned office equipment with Section 179, companies can increase their productivity, streamline operations, and save money on taxes.
Here are a few ways to use Section 179 in 2023:
2023 Section 179 Deduction Calculator
Before purchasing or leasing equipment this tax year, estimate your potential savings using this helpful calculator tool. Learn More →
How To Claim Section 179 Deductions
Claiming a Section 179 deduction is simple: purchase qualifying property for your organization and start using it.
Other steps to claiming your business deduction include:
- Keeping records of the date of purchase and all costs associated with the purchase
- Talking to your tax professional to find the total property costs that are qualified
- Opting to take the Section 179 deduction by completing IRS Form 4562 and including it in your business tax return
Remember, there are limits to this business tax deduction, so talk to your tax professional to determine how your business can take advantage of it to purchase or lease qualifying office equipment.
Purchasing Printers, Copiers, and Business Equipment in 2023
If you've noticed that your equipment is no longer meeting the demands of your business, it’s time to upgrade. By taking advantage of the Section 179 deduction in 2023, businesses can invest in new technologies that will help them stay competitive and maximize their potential for success.
Editor’s Note: This post has been updated for accuracy and current best practices.