Asset Expensing for Taxes


Welcome to this week’s installment on business taxation! Head over to our Youtube channel and take a look at this page on IRS.gov to learn more.

https://youtu.be/Jn88lwNLYdc

We thought a lot of people knew about this topic, and then we found the other day that some of our clients had never heard of it! So let’s talk about Section 179 in the Internal Revenue code. Section 179 has been in the code for a very long time, way back when our CEO was in college and the asset expensing limits were ten thousand dollars a year! Since then, every administration has sought to increase this limit, plus it’s increased over time with inflation and economies getting bigger. But what is Section 179? It plays along with the asset depreciation rules for federal income tax purposes, but what Section 179 allows is for a company to write off 100% of an asset that was purchased during that tax year rather than taking that cost over five, seven, ten years. What does Section 179 apply to? 179 applies to tangible personal property for tax purposes. That means desks, chairs, computers, vehicles, but not necessarily automatic passenger automobiles, tractors or things of that nature. So if you are a capital heavy business, you can certainly utilize Section 179.

Now when you take this one-time deduction, you don’t get to keep depreciating the asset over the future years. You take it one time. You take it up front, which reduces your taxes now. The reason the government puts this in is to encourage businesses to invest in equipment, which is good for the economy all the way around. When you buy something, that dollar travels around three or four times. It just helps the economy when people are investing.

What’s the limit? Back in the 80’s, it was $10,000. With the Tax Cut and Jobs Act passed in 2018, and with adjustment for inflation, that limit is now $1 million and 40 thousand dollars for your 2020 taxes. Hopefully you’re not doing your own taxes, but for whatever reason if you and your taxpayer haven’t thought about this, and you’ve bought some stuff during 2020, be sure and check that you’re taking advantage of Section 179. However, if you have a net operating loss, you can’t use it. You’ll have to go ahead and use the regular depreciation rules, but you cannot increase or create a net operating loss with Section 179.

This is a planning point for when you’re doing your forecasting and planning, so we’d love to help you think through that. If there’s anything we can do, give us a holler! We’d love to talk.

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