If you’re a small business owner, finding deductions in the tax code can take up a lot of time.
You might be worried that you’re using them correctly.
Done effectively, you can use Section 179 and bonus depreciation to reduce taxes while investing in your business.
Here’s a breakdown of both to help you decide what is best for your business.
What is the Section 179 deduction for 2019?
Under the Tax Cuts and Jobs Act (TCJA), Section 179 was updated to a $1,000,000 deduction for tax year 2019.
Under IRS tax code Section 179, businesses can deduct the full purchase price of qualifying equipment and/or software purchased or financed during that same tax year.
There is a limit to equipment purchases: in 2019, it’s capped at $2,500,000.
This makes Section 179 a true small and medium-sized business deduction.
Shaving Section 179 off of the gross income of your business can not only save you money, but allows you to effectively reinvest in your business with the most efficient equipment to help you run your business at its best.
Can you take Section 179 and bonus depreciation in the same year?
Bonus depreciation is not available every year, so no.
But it is available in 2019 at 100%.
Bonus depreciation is generally taken after the Section 179 spending cap is reached, and is available for both new and used equipment. That’s new — and a big change for business owners.
Very large businesses spending more than the Section 179 spending cap will get the most out of bonus depreciation.
If you’re a business with a net loss, you’re still qualified to deduct some of the cost of new equipment and carry forward the loss.
You should be using both Section 179 and bonus depreciation if you qualify. You’ll improve your cash flow and be more efficient as a business.
Read more from the IRS about bonus depreciation and Section 179 under the new TCJA rules.