Every small business needs equipment to operate, whether it’s machinery, computers, software, office furniture, or vehicles. If you have been thinking about purchasing or upgrading your equipment, it may be to your advantage to do so before the end of the year.

A Big Tax Break for Small Businesses

Section 179 is a tax code that makes purchasing equipment more affordable for small businesses by allowing you to deduct up to $500,000 a year in qualifying purchases from your taxable income. Companies that spend less than $2 million a year on qualifying business equipment purchases are eligible for this tax break. This lets you deduct the value of equipment you buy or finance and put into use in a single tax year.

The Section 179 deduction has existed for several years, but the levels and availability were constantly fluctuating. Previously, small businesses were allowed to deduct only a portion of the value of the equipment each year. For example, if you purchased $10,000 in new computers, you might have had to deduct $2,000 a year over a period of five years.

Congress passed the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) in December 2015, which expanded the Section 179 deduction limit to $500,000 and made it permanent until further notice. In addition, businesses of all sizes will be able to depreciate 50 percent of the cost of equipment acquired and put in service during 2015, 2016, and 2017. The bonus depreciation will phase down to 40 percent in 2018 and 30 percent in 2019.

Section 179 can be a big advantage to your small business. You can reduce your taxes by a larger amount this year instead of waiting to get the full tax benefits of buying new equipment. This 2017 Section 179 Calculator will show you how much this could save your small business.

What Equipment Qualifies?

Because Section 179 is designed to support small businesses, most of the equipment you will purchase, finance, or lease qualifies for the deduction. The following are examples of what may qualify:

  • Equipment purchased for business use
  • Tangible personal property used in business
  • Business vehicles with a gross vehicle weight in excess of 6,000 lbs
  • Off-the-shelf computer software that is readily available for purchase, subject to a nonexclusive license, and has not been substantially modified
  • Office furniture
  • Office equipment
  • Property attached to your building that is not a structural component (printing press, large manufacturing tools)
  • Partial business use equipment (deduction is based on the percentage of time the equipment is used for business versus personal use)

Keep in mind that to qualify, the equipment must be purchased and put into use between January 1 and December 31 of the tax year you are claiming.

Section 179 offers small businesses a great opportunity to maximize purchasing power, but it is subject to change each year without notice. Do your homework or consult with your accountant to ensure that your company is taking full advantage of this generous tax code benefit. Visit the IRS website for more information on Section 179 deductions and how they might help your business.

Equipment Term Loans Provide Working Capital

Summit Financial Resources views your equipment as an asset we can loan against. As an add-on product to an Asset Based Loan or Invoice Factoring Loan, an equipment term loan can allow you to finance your short-term needs and make the investments necessary to keep your business growing. If you’re seeking capital to maintain or upgrade your equipment, ask us about increasing your cash flow by adding an equipment term loan to your core line of credit.

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Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.