Published May 11, 2023
Section 179 is a tax deduction designed to encourage small businesses to invest in their growth and improve their infrastructure. Under section 179, small businesses can claim an immediate deduction on certain depreciable equipment that was purchased during the tax year. This deduction can be up to the full amount the equipment was purchased for. By understanding the section 179 deduction limits, qualifying purchases, and claiming process, small business owners can maximize their tax savings while growing their business.
Starting with the 2022 tax year, the maximum amount small businesses can deduct with section 179 is $1,080,000. For businesses that spend more than $2,700,000 on property, the maximum amount they can claim is reduced by every dollar over until it is completely eliminated at $3,780,000.
To be eligible for the Section 179 deduction, the purchased equipment must meet the following criteria:
- Tangible, depreciable, and used in the active conduct of the business
- Acquired for use, not for resale
- Have a determinable useful life of more than one year
- Placed in service during the tax year for which the deduction is being claimed
Examples of qualifying property include:
- Computers and off-the-shelf software
- Office furniture and equipment
- Machinery and manufacturing equipment
- Vehicles weighing 6,000 to 14,000 lbs
To claim section 179 deductions, small business owners must complete Part I of the IRS’s Form 4562, Depreciation and Amortization. This form should be filed with the business owner’s income tax return. Be sure to provide all the necessary information about the property otherwise the IRS could disallow the deduction.
The 2022 section 179 deduction offers a valuable opportunity for businesses looking to invest in equipment. However, the IRS estimates it could take up to 37 hours to complete the required form. For small business owners, this is valuable time that is better spent towards growing their business. Fortunately, JTC CPAs is a growing firm of licensed accountants who can help small businesses wade through tax regulations while maximizing their profits. Call (208) 947-2400 to consult with one of JTC’s professionals to ensure you are taking full advantage of the 2022 section 179 deduction and other tax-saving strategies tailored to your business’s needs.
Contributor: Caleb Sapp