Did your business purchase equipment, like new computers for the team or vehicles for deliveries, this year? If so, Section 179 is a worthwhile piece of tax law that may help you lower your business tax liability in 2022.
In This Article:
- Section 179 allows for qualified software, equipment, and business expenses to be deducted all in one year, rather than depreciated as an asset over several years.
- By claiming the full deduction, businesses can lower their tax liability for that particular year. This is a particularly advantageous tax strategy for startups and small businesses.
- Only qualified business purchases can claim deductions.
What is Section 179?
Section 179 is a tax deduction for businesses. Modified by the Tax Cuts and Jobs Act of 2017, it allows businesses to deduct software, equipment, and vehicle expenses as one sum in a tax year, rather than depreciating those assets over several years.
The equipment must be placed into service during the year in which the deduction is claimed.
What are the advantages for your business?
Section 179 is advantageous to new businesses needing to invest heavily in expensive equipment to get started. By taking the full deduction on this qualifying equipment in one year, you can lower your profit and reduce tax liability for the year.
Additionally, you can pick and choose which purchases you want covered, and which you’d rather capitalize as a depreciating asset over the years.
What is the maximum Section 179 deduction for 2022?
For 2022, the maximum deduction is $1,080,000 with a phaseout threshold of $2,700,000.
What expenses can be deducted?
Equipment that qualifies for deduction under Section 179 includes:
- Machines and manufacturing equipment
- Computers and off-the-shelf software
- Office furniture and equipment
Items can be purchased new or used, so long as they are “new” to the business itself. You must use items for business purposes more than 50% of the time to qualify for a full deduction under section 179.
Additionally, the IRS notes that certain improvements to commercial property, like “roofs; heating, ventilation and air-conditioning property; fire protection and alarm systems; and security systems” qualify for deductions.
Lower your 2022 business tax liability
When it comes to taking advantage of tax deductions, our tax advisors at Landmark are here to help you lower your business tax liability through strategic tax strategies.