Why Use Section 179?

Successful businesses take advantage of legal tax incentives to help lower their operating costs. The Section 179 Deduction is a tax incentive that is easy to use, and gives businesses an incentive to invest in themselves by adding capital equipment – equipment that they use to improve their operations and further increase revenue.

In short, taking advantage of the Section 179 Deduction will help your business add equipment, vehicles, and software while allowing you to keep more of your tax dollars.

Financing and Leasing Equipment With Section 179

Using Section 179 with an Equipment Lease or an Equipment Financing Agreement might be the most profitable decision you make this year. Why? Because the taxes you save with the deduction will almost always exceed your cash outlay for the year when you combine (i) a properly structured Equipment Lease or Equipment Finance Agreement with (ii) a full Section 179 deduction. It is a bottom-line enhancing tool that allows you to add new equipment, vehicles, and/or software to your business.

Advantages of Leasing and Financing

The obvious advantage to leasing or financing equipment and/or software and then taking the Section 179 Deduction is the fact that you can deduct the full amount of the equipment and/or software, without paying the full amount this year. The amount you save in taxes can actually exceed the payments, making this a very bottom-line friendly deduction (you are reading this correctly; in many cases, the tax savings from the deduction will make your bank account larger than if you never financed the equipment in the first place.)

Leasing & Section 179

Did you know that your company can lease equipment and still take full advantage of the Section 179 deduction? The main benefit of a non-tax capital lease is that you can still take full advantage of the Section 179 Deduction, yet make smaller payments. With a non-tax capital lease, you can acquire and write-off up to the deduction limit worth of equipment this year, without actually spending that amount this year.

In other words, a small business that is managing cash flow can leverage a non-tax capital lease to minimize out-of-pocket cash, and still take the full Section 179 Deduction. Examples of non-tax capital leases include a ‘$1 Buyout Lease’ and a ‘10% Purchase Upon Termination (PUT) Lease’. In many cases, the amount you save in taxes will be MORE than the total of your first year’s payments.

Equipment & Software Financing – EFAs

You may also obtain an equipment loan using a Section 179 Qualified Equipment Finance Agreement (EFA) and still take the full Section 179 tax deduction.

Is there anything else I should know?

Section 179 is taken on an item by item basis, and you do not have to use it on all eligible property bought during the year if you do not wish to do so.

Extensions and Amended Returns

You may claim Section 179 deductions up to the due date (including extensions) for filing your taxes for the tax year you are claiming the deduction. Initially, you were not allowed to claim Section 179 for previous tax years – however, under Rev. Proc. 2008-54 you are now able to amend and elect Section 179 if you previously did not for tax years beginning after 2007 through the current year.

Please note

You must keep complete records of the business equipment you leased or purchased during the year, including where you acquired the equipment from and the date the equipment was acquired and placed into service. If filing for any particular year, the equipment must have been leased or purchased and placed into service between January 1 and December 31 of the year you are filing for.