What if we told you that you could buy machinery and software to help your manufacturing business and deduct up to $1,040,000 on your taxes? Well, your wish is our command! While we can’t take full responsibility (or any responsibility, really) for the creation of this glorious tax code, we can help explain it in simple enough terms so your biz can reap the benefits. Check out our guide to Section 179.
Here’s the Rundown
Section 179 is a tax code designed to help small and large businesses alike purchase machinery and software. It allows businesses to deduct the full amount of equipment purchased, leased, or financed, up to $1,040,000. It’s the government’s way of saying “invest in your business!” So, listen to Uncle Sam and treat yourself.
The deduction limit for 2020 is capped at $1,040,000 thanks to the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), which was passed by the House and the Senate and signed into law on December 18, 2015. Read here for more info about Section 179 spending caps, bonuses, and more.
Let’s look at some of Section 179’s benefits. (Section179.org also does a nice job of explaining the tax code’s perks, but only if you feel like putting your readers on.)
- Section 179 is a tax code created to help businesses. Businesses can deduct the full amount of the purchase price of equipment up to $1,040,000 for 2020.
- Section 179 can greatly help your bottom line. By deducting the full cost, you lower the amount you pay for equipment and/or software substantially while benefiting from the equipment purchased. It’s a win-win.
- Section 179 is simple to use. All you need to do is buy the equipment for your business and fill out IRS Form 4562. That’s it.
There’s a Deadline
Section 179 enhancements typically expire at year’s end. The various Stimulus Acts over the past few years have included special provisions for Section 179 and bonus depreciation, but a word to the wise—put your machinery and software orders in NOW, before the end of the year.
In short, Section 179 is a major incentive for businesses to keep up with state-of-the-art machinery technology. But it’s a “use-it-or-lose-it” proposition, meaning, you only have until December 31, 2020, to take full advantage of Section 179. Section 179 is most effective when the total amount of equipment purchased is limited to $2,590,000. After $2,590,000, the dollar-for-dollar deduction amount is phased out.
What Kind of Capital Equipment Can You Invest In?
- Business vehicles
- Office furniture/equipment
Make your manufacturing business’s wish list ASAP before the tax incentives expire for this calendar year! Think about the following concerns:
- Do you need to up your manufacturing productivity?
- Do you need to reduce scrap waste?
- Are you facing any problems related to machinery throughput?
- Are you having difficulties keeping up with orders or shipping products on time?
- Are your labor costs too high?
- Are you using outdated methods like tape measures and/or manual stop gauges/clamps?
- Are you having a tough time training new employees?
- Are you facing any problems related to quality control?
- Do you struggle to meet just-in-time or build-to-order demands?
- Are your competitors pricing you out?
If you answered yes to any of the above, investing in TigerStop equipment under Section 179 can help. For example, say you’re looking to purchase an optimizing saw with touch-screen software. The easy-to-use saw system will increase productivity 3-fold, and it will also increase material yield by 12 percent. You will be able to get more product out the door, and do it on time, due to increased throughput.
Your machine set-up time will go to zero, and your parts will be cut accurately, improving quality control. You’ll save on labor costs as operators spend less time producing more, all while reducing rework and scrap waste expenditures. The touch-screen software will give greater control and customization on the manufacturing floor. Additionally, the 12 percent material yield savings is on top of the added tax benefits covered in Section 179.
Advantages of Section 179
Let’s look at two very different examples of how Section 179 could benefit your organization.
Example 1: Take a look at a $25,000 investment in capital equipment. With section 179, and assuming your business is in a 35% tax bracket (the common US corporate tax rate), your business’s cost savings are $8,750—effectively reducing the equipment cost to $16,250.
Example 2: Take a look at a $510,000 investment in capital equipment. With Section 179, and assuming your business is in a 35% tax bracket, your business’s cost savings are $178,500—effectively reducing the equipment cost to $331,500.
Think about how much money you’re able to invest in capital equipment and customize your values with the Section 179 Calculator here. Take advantage of Section 179 and see what kind of purchasing options are available for your organization. Learn how to recuperate dollars while gaining a competitive advantage today.