The Complete Guide to Section 179

The Complete Guide to Section 179

Tax season can be a stressful time for many, especially for small business owners that may not know the ins and outs of the tax documents intended for entrepreneurs. The March 15 deadline tends to loom, and all businesses of course wish to minimize taxes through maximizing deductions, but often do not know the best ways to do so. For small businesses looking to take advantage of applicable deductions, reading up on Section 179 of the tax code is a way to help create a more solid future for the business.

Section 179 Basics

Section 179 essentially applies to deductions for depreciation of property. Instead of increasing your overall deduction, Section 179 allows businesses to take their whole deduction more quickly. This can mean that a business can declare the entire deduction in a single year, as opposed to claiming it over the course if several years. For example, Section 179 would allow for a business with an appliance costing $5,000 and a useful life of 5 years to deduct the entire amount in one year instead of collecting a partial amount annually. Section 179 is especially helpful for growing businesses that require a lot of equipment initially, so that the deductible can help fuel the growth and help make the business successful more quickly. The current deduction limit is $500,000, with a total investment limit of $2 million.

Property Qualifications for Section 179

The property that qualifies for Section 179 is property meant for long-term use, including property such as business machines, vehicles, and computers. Section 179 also applies to the property bought used from another party. There are, however, circumstances that exclude you and your business from qualifying for the deduction, which include:

• Using the deductible for any property that you may buy from a relative, obtain from a business or organization you have control over, or inherit.

• The property must be used primarily for business within the first year of purchasing, meaning the conversation of personal property to business property will deem you ineligible.   

I tis important to note that the property must be used for business purposes no less than 50% of the duration of its use. In simpler terms, if a vehicle is purchased for both business and personal reasons, the usage of the car for business must be documented for it to remain eligible. Similarly, if you were to purchase a computer for the business, but often checked a personal email, you would still qualify as long as its business tendencies were at least half of its purpose.

There are several kinds of property that does not qualify for this rule:

• Both furnace and air conditioning units

• Intangible property; patents or copyrights

• Land and permanent structures

• Property meant for use outside the U.S.

Understanding Business Taxes

Taxes are very easily overwhelming, which is why understanding your own personal limits when it comes to taxes is extremely important for your business. If you are aware of an inability to handle the avalanche of paperwork that is tax season for small businesses, and currently use software to help, it may be time to hire a professional to ensure your important documents are filled out correctly and sent on time to the correct facility. Professionals can also help make sure you are taking full advantages of all there is to take advantage of, and avoid the penalties of not paying a file extension.

Because taxes can be so sneaky, as a business owner it is important to understand exactly what it is you will be dealing with, and discovering ways to take advantage in the areas that you are able to. Becoming educated on what you are required to do and entitled to are important aspects of your job, so be sure to maintain a full awareness of your taxes. Keeping up with the paperwork can not only help minimize expenses and issues with business, but also streamline how you run things and eventually lead to a more successful business.