The Tax Cuts and Jobs Act (TCJA) passed in December 2017 made sweeping changes to the income tax laws. If you own a small business, many of the changes will impact your 2018 taxes. Now more than ever, you need to understand the essentials of the new regulations to ensure you are meeting your obligations as well as taking advantage of all available deductions.
One of the key changes small businesses may benefit from is the increase in bonus depreciation for qualified asset purchases. The bonus depreciation is a valuable tax-saving tool for business owners that may have taken deductions under Section 179, allowing an immediate first-year deduction on the purchase of eligible assets. The TCJA increased the first-year depreciation allowance from 50% of asset value to 100% for qualified property.
What is Section 179?
Section 179 is a section in the tax code that makes purchasing equipment more affordable for small businesses. For 2018, it allows owners to deduct up to $1 million in qualifying purchases from their taxable income. Companies that spend $2.5 million or less on qualifying business equipment purchases are eligible for this tax break, which lets you deduct the value of equipment you buy or finance and put into use between January 1 and December 31 of the tax year you are claiming. Because Section 179 is designed to support small businesses, most of the equipment you purchase, finance, or lease will qualify for the deduction.
The TCJA positively impacted Section 179 in several ways. It increased the deduction limit to $1 million for 2018 and beyond and the cap on equipment purchases to $2.5 million. Additional qualifying property was added, including improvements to existing nonresidential property; heating, air-conditioning, and ventilation systems; and fire protection, alarm, and security systems.
Businesses Can Immediately Expense More
Business owners can utilize the bonus depreciation after the Section 179 deduction limit is reached. In other words, if you buy enough equipment to exceed the deduction, you can take a first-time “bonus” depreciation on the rest.
The 100% bonus depreciation applies to qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. The definition of eligible property was expanded to include used equipment acquired and placed in service after September 27, 2017, when specific factors apply.
The new tax law also changed depreciation limits for passenger vehicles and removed computer or peripheral equipment from the definition of listed property. Check the IRS website for detailed rules and limitations for depreciation and expensing under the TCJA.
Leveraging the Value in Your Business Equipment
When it comes to running your day-to-day operations or expanding your business, there may be even more value in your equipment than you realize. 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 program, an equipment term loan can augment an existing working capital line of credit.
Combining both products allows you to use your company’s assets to help ensure a steady stream of cash flow. The additional funds can be applied to any business expense, from financing day-to-day operations and maintaining or upgrading your equipment to purchasing extra inventory in order to meet demand and stay competitive.
Our term loan amortization is up to 36 months, allowing you to finance your short-term needs and make the investments necessary to help your business thrive. Any equipment you use to run your business may be used as collateral, from heavy machinery, manufacturing, and printing equipment to drill presses and precision hand tools. While an individual item may not be worth much on its own, collectively, the value adds up. If using your equipment to secure funding for your business is a viable option, Summit Financial Resources may be able to help.
The changes to Section 179 and the bonus depreciation offer small businesses a great opportunity to maximize their purchasing power. Be sure to consult your accountant or tax professional to discuss these benefits and other deductions for which your small business may qualify under the new tax law.
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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.
Summit does not provide tax, legal, or accounting advice. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.