Section 179 Deductions for Philadelphia Businesses
Paying taxes is an expected part of doing business. However, every year the Internal Revenue Service (IRS) changes the tax laws. These changes are sometimes favorable to business owners, and sometimes they are not. As a business owner, it is essential to be aware of changes to minimize tax risk or take advantage of any opportunities to save money. Recent changes to Section 179 Deduction rules fall into the opportunity to save money category. The new rules provide for more significant deductions on new equipment to allow businesses an incentive to grow and business owners to invest in themselves.
2021 Section 179 overview
Section 179 is part of the tax code that allows businesses to write off purchasing equipment used for the company. Section179.Org confirms that in the past, businesses took advantage of Section 179 Deduction rules to purchase new business vehicles such as SUVs and Hummers, leading to Section 179 earning the nickname “SUV Tax Loophole,” or “Hummer Deduction.” The IRS responded to this overuse by reducing the limits on business vehicles, but recent events such as the pandemic created a need for businesses to advance their technology to support an increasingly remote workforce and rapidly evolving business climate.
Section 179 Deductions provides tax relief for small businesses, although it is available to all companies that meet the program restrictions. In addition, for 2021, Section 179 Bonus Deduction allows businesses to deduct qualifying equipment purchases entirely in the year the equipment is put into service instead of being depreciated over multiple years. United States lawmakers have included Section 179 in many of the Stimulus Acts and Congressional Tax Bills passed throughout 2021, allowing millions of small businesses to benefit from Bonus Depreciation.
How can small businesses benefit from Section 179?
Under the standard rules of Section 179, businesses would deduct a qualifying equipment purchase expense over several years. For example, if a company paid $60,000 for new IT equipment, the IRS would only allow writing off a portion of that amount each year, depending on the depreciation schedule. While it is true that there is a significant benefit to any write-off allowing businesses to recoup the cost of improvements, new Section 179 rules for deductions are even better.
For the 2021 tax year, most small businesses can write off the entire purchase price of qualifying equipment up to $1,050,000 plus an additional $100,000 Bonus First-Year Depreciation made available under the “Tax Cuts and Jobs Act.” For example, the actual savings available to a business in a 35-percent tax bracket that purchases and puts into service qualifying equipment for $1,150,000 is $402,500. Besides the $1,050,000 write-off cap, there are limits to the total purchase price of the equipment as well. Deductions for equipment purchases over 2,620,000 begin to phase out on a dollar-for-dollar basis, ending entirely after spending $3,670,000.
How can businesses take advantage of Section 179?
Any business that purchases, finances, or leases new or used equipment for less than $3,670,000 and puts it into service during the 2021 tax year should qualify for the Section 179 Deduction. With some restrictions, most physical products qualify for Section 179 Deduction, including IT hardware, off-the-shelf software, and vehicles used for business purposes.
Equipment must be dedicated to business use at least 50-percent of the time to qualify for Section 179 Deductions. You can still use your business vehicle to take the kids to soccer practice or use your company laptop to watch movies, but you will need to keep track of the percentage of business-related usage. For example, if you purchase a new laptop in 2021 and every day you use it 8 hours for business and 2 hours watching a movie, then your business usage is 80-percent. To calculate the Section 179 Deduction, you would multiply the laptop’s purchase price by 80-percent (0.8). Be sure to keep track of mileage and other usages of business assets to make these calculations at tax time and in the event of an audit.
Another restriction on Section 179 Deductions for 2021 is the service requirement. It is no secret that 2021 is providing challenges to supply chains across the globe. In normal years, ordering new IT equipment on Monday and having it installed the same week is not out of the question, but in 2021 such a quick turnaround may not be possible. Therefore, qualifying equipment for 2021 tax year Section 179 Deductions must be purchased and put into service in 2021.
As a business professional, you know the importance of hiring professionals to work with you to accomplish your goals. It would be best to discuss your Section 179 Deduction options with your accountant or tax professional before implementing any spending strategies involving taxable assets.
When the time comes to add or update your company’s IT solutions, Menark Technologies is available to help. Located in Philadelphia, we offer local service to the MidAtlantic region, including Pennsylvania, New Jersey, Delaware, and Maryland, as well as virtual services anywhere with an internet connection. In addition, we offer an outstanding line of IT services, including:
- Complete IT Care – Our skilled technicians automatically monitor your IT environment to remotely perform updates, upgrades, and required patches to ensure proper operation by spotting and responding to any anomalies that could affect your business.
- IT Security – We will configure your firewall, install antivirus, and cyber-security monitoring software to keep you and your business safely online with confidence.
- IT Consulting – We will work with your team to ensure your IT environment supports your growth plans. We are proactive in supplying your leadership team with information concerning available technology and new opportunities.
- Help Desk – We have technicians available by phone or chat to answer any technical questions or respond to any IT issues you may encounter.
- Office 365 Support – Our IT support team is available to implement, migrate emails, and configure Office 365 to support your team’s daily workflow.
- Data Backup and Business Continuity – We offer secure data backup that allows access when you need it. This flexibility supports a business continuity strategy capable of restoring your systems quickly after a natural disaster, criminal event, or human error impacts your local IT function.
- Pay as You Grow Services – We recognize that continuous IT care and security is not feasible for all companies, so we offer an hourly service that gives your company access to our entire team of IT professionals. We can fix your computer or tackle a complex IT project and anything in between.
We look forward to serving you! Start the conversation by contacting us today. We will be happy to speak with you about your technology challenges and goals.
Menark’s approach to outsourced IT services is focused on supporting the success of your organization in the same way that we foster the successes of our team. Every step in the Menark process has been developed by our team with the productivity, profit, and growth of your organization in mind.