The Tax Cuts and Jobs Act changed things for business owners large and small, resulting in new tax cuts and modifying some standard deductions that business owners have been used to claiming for years — like the Section 179 tax deduction. The good news is that you can still use this deduction, but it’s important to read the fine print to make sure you’re using it right. Let’s break it down:
What Is a Section 179 Tax Deduction?
Named for the portion of the IRS tax code that describes it, a Section 179 tax deduction allows business owners to get a tax break immediately when they finance, lease or purchase new equipment. Otherwise, business owners must depreciate the equipment over time, taking a smaller deduction each year for several years. Business owners are allowed to take a Section 179 tax deduction on big-ticket items such as vehicles, computers, office equipment and machinery.
How Did the Deduction Change With the New Tax Law?
According to the IRS, the Tax Cuts and Jobs Act changed Section 179: Beginning in 2018, the maximum amount that business owners can choose to deduct for Section 179 property increased from $500,000 to $1 million. If the cost of the property is more than $2.5 million (which increased from $2 million), the deduction limit is reduced.
When Should You Use the Deduction?
In some cases, taking a deduction in smaller amounts over several years through depreciation is effective. But if you’ve had a banner year and need to cut your tax bill, a Section 179 tax deduction can help you do that immediately. Just purchase, finance or lease the business equipment you need, and write it off on your taxes immediately.
A Section 179 tax deduction is a way to save money on taxes right now, without waiting for future years to get the tax breaks for purchasing business equipment.