As you run your business, you need tools and equipment to operate. Some of the most common tools you purchase include smartphones, laptops, vehicles, software, etc.
The Section 179 2023 tax deduction outlines several write-off incentives that can benefit your business when buying or upgrading equipment to help streamline your operations. Tax codes can be confusing… so we’ve looked at section 179 changes so you don’t have to.
What’s the Deal with Section 179 in 2023?
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying tools, equipment and software purchased or financed during that tax year.
So, if you buy or lease any qualifying asset, you can deduct the full purchase price from that year’s gross income. And the 2023 update to Section 179 makes it more beneficial to small businesses than ever before! It is one of the few tax laws available to small- and medium-sized businesses (SMBs) that specifically benefit small businesses.
How it Works
A few years ago, any qualifying assets businesses purchase would get written off over time, a small amount each year through depreciation. For example, if your company purchases a machine for $50,000, you would have written off $10,000 a year for five years.
However, most business owners would rather write off the entire purchase price in the year that they buy it. Who wants to wait five years to recoup the funds? And since the passing of the Tax Cuts and Jobs Act, the Section 179 deduction allows your business to write off the entire purchase price of qualifying assets within that current tax year.
What Changed from Last Year
Some of the dollar amounts have changed from last year. For 2023 taxes, you can deduct up to $1,160,000 in new or used assets with a spending cap of $2,890,000.
“Bonus depreciation, which is generally taken after the Section 179 spending cap is reached, will begin to phase down in 2023 at which point it will only be offered at 80%” states AgDirect.
After this year, that amount will decrease 20% each year through 2027.
This allows businesses to use Section 179 to purchase necessary assets right away, instead of waiting. Most small businesses can write off the entire cost of qualifying new or used equipment when filing their 2023 taxes (up to $1,160,000).
Where to Begin
When’s the best time to buy, lease or upgrade necessary business assets? Before the new year!
Section 179’s tax incentives make today the best time to consider buying, leasing or upgrading necessary business assets like service management software, tools or equipment. This deduction can provide your business with the necessary incentives to purchase assets needed to grow your business.
What exactly qualifies as an asset under Section 179 when you file taxes in 2024?
Most tangible goods, including “off-the-shelf” software and business-use vehicles, qualify for the Section 179 deduction. Keep in mind the assets listed below must be purchased and used between New Year’s Day and December 31, 2023.
Also, the equipment, vehicle(s) or software must be used for business purposes more than 50% of the time to qualify for the Section 179 deduction. Multiply the cost of the equipment, vehicle(s) or software by the business-use percentage to arrive at the monetary amount eligible for deduction under Section 179.
Which Assets Qualify?
- Equipment purchased for business use
- Tangible personal property used in business
- Business vehicles (according to automobile component deduction limits and the weight of the vehicle.) See here for specific qualifications.
- Furniture and appliances purchased for a furnished rental apartment.
- Computers used for work more than 50% of the time
- “Off-the-shelf” computer software
- Office furniture
- Office equipment
- Property attached to your building that is not a structural component of the building
- Partial Business Use (equipment purchased for business use and personal use: generally, your deduction will be based on the percentage of time that you use the equipment for business purposes)
- Certain improvements to existing non-residential buildings: fire suppression, alarms and security systems, HVAC and roofing
What is “off-the-shelf” software?
The software rules in section 179 are confusing! We’ll break down the guidelines of what can be covered:
- Must be readily available for purchase by the general public.
- Must be subject to a non-exclusive license. (i.e., it’s not just yours)
- Must not have been substantially modified.
- Also, software must meet ALL of these general specifications:
- Must be purchased or financed with a specific qualifying lease or loan.
- Must be used in your business for income-producing activities.
- Must have a determinable useful life.
- Must be expected to last more than one year.
Learn more about section 179’s software requirements HERE.
How to Get Started
Although Section 179 is fairly straight forward, you should contact a licensed tax professional to discuss writing off assets and receiving the full benefits.
It’s always in your best interest to walk through this process with a professional to ensure everything is covered.
When you meet with your accountant, be sure to review your company’s financial status for the year, determine your business’s deduction amount, and decide how to move forward in the application process. Your accountant can also help identify which business asset purchases are eligible for the deduction.
To apply for this tax deduction, you must fill out a special IRS tax form. Form 4562 can be found on the IRS website. The 21-page form is lengthy, so it’s good to have a tax professional on hand. You must complete and submit the form by the deadline of December 31, 2023, at midnight.
As a general side note, Section 179 is subject to change without notice every year. The best way to stay up to date on any changes is to periodically check the IRS website.
Also, if you’ve been thinking about purchasing field management software, now is the time! Book a demo of FieldEdge today to get started – don’t miss the chance to write it off your taxes this year!
*We are not tax professionals – we are only sharing public information. Be sure to work with a licensed tax professional to determine exactly which business assets can be filed under section 179.