Section 179 enables you to treat up to $500,000 in equipment for a business expense on your tax return in the year of purchase rather than depreciating the equipment and devoting its price over several years. Our Section 179 calculator can help you determine how much you can deduct on your tax return.
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Section 179 Calculator: How Much Can I Save?
- Value of Equipment: This should be the amount which you paid for the equipment.
- Estimated Lifetime: Here is the quantity of time the equipment is expected to remain in working condition.
- Marginal Tax Rate: Generally speaking, this is the tax bracket that you fall into.
How the Section 179 Calculator Works
To be able to use our Department 179 calculator, you will first have to enter the cost of the gear, the estimated life of the equipment, and your marginal tax rate. All these are the three factors that determine how much you’ll save by electing the 179 deduction versus standard depreciation methods. If you are unsure of your tax rate, use last year’s tax invoice as a manual, ask your accountant to get help, or click here to see your marginal tax rate.
The calculator has two outputs:
1. Estimated Tax Savings in Year 1
This is the total amount of money you can save by electing Section 179 instead of standard straight line depreciation (there are additional depreciation methods such as MACRS depreciation). This amount takes into account the simple fact that you will have some tax savings (1 year’s worth of depreciation) even if you choose ordinary straight line depreciation instead of the 179 deduction. Most segment 179 calculators do not take this into consideration, which explains why the amount you see here may be different from what other calculators show.
2. Lifetime Benefit
There is an extra benefit to electing Section 179 beyond the initial year tax savings. Since you’re receiving your tax savings upfront rather than over the life span of the gear, you have extra money to use to your company which you would not have experienced if you used regular depreciation methods. To compute the life benefit, we suppose that you would have had to borrow the money which the 179 deduction permits you to keep in your pocketand pay a 12% interest rate on the funds. Other calculators do not tell you the life advantage of electing Section 179.
Section 179 Example
Let’s say you purchase restaurant equipment which has a 10-year lifetime for $50,000. Usually, you might deduct $5,000 of the equipment’s value every year for 10 years. If your company had a 35% marginal tax rate, this could lower your tax bill by $1,750 every year for ten years, for a total savings of $17,500.
If you utilize Section 179, you will find the year one savings of $1,750, but you’ll also save an extra $15,750. Over the 10-year lifetime of the gear, you would also have lifetime benefits of $9,450 you could put to work in your company.
What Equipment Qualifies for Section 179?
The good thing is that most equipment that you buy or lease for your company will qualify for the Section 179 deduction.
To make use of the deduction on your 2017 taxes, then you must acquire the equipment and start using it in your business involving January 1, 2017 and December 31, 2017. It is not sufficient to just purchase the equipment during these dates–you should also use it to use in your business during this time.
Examples of what is eligible for Section 179 comprise the following:
- Business appliances (ovens, baking equipment, etc.. )
- Office equipment (computers, fax machines, telephones, etc.. )
- Office furniture (desks, chairs, etc.)
- Business vehicles with a gross vehicle weight in excess of 6,000 pounds. (See the full list of vehicles qualified for sec 179)
- Software that is not habit designed
- Manufacturing equipment and tools
Equipment that’s purchased for both business and personal use qualifies for Section 179, however, your deduction will be based on the proportion of time that you use the equipment for business purposes.
Leased equipment is eligible for Section 179 but only if your rental is organised as a capital lease (e.g. a buyout rental ). Fair market value leases aren’t eligible for Section 179, though you can deduct your monthly lease payments as an overall business expense. Read more about different types of leases in our ultimate guide to equipment leasing.
How to Elect the Section 179 Deduction
Section 179 savings are not automatic; you need to decide to use Section 179 by submitting IRS Form 4562 along with your tax return. If you do your own taxes, then we recommend TurboTax since it will walk you through the steps to fill out the tax form to the sec 179 deduction.
Below is a snapshot of this part of Form 4562 That Has to Be done to select the sec 179 deduction:
IRS Form 4562 — Depreciation and Amortization — Part 179 Section
Also, make sure to keep records of the business equipment you purchased or rented during the year, including where you acquired the equipment out of and the date the equipment was acquired and put into service. QuickBooks lets you easily keep track of equipment purchases during the year.
In case the IRS audits you, then you will need accurate records to prove that you’re qualified to take the Section 179 deduction.
Other Part 179 Provisions
Our Section 179 calculator is intended for small companies that invest less than $500,000 on equipment. If your company spends more than that, these other provisions could be applicable to you.
Bonus Deduction for Equipment Acquisitions Over $500K
Businesses can find an additional 50% bonus deduction for purchases of equipment above $500K. This provision is of use primarily to bigger companies that buy a good deal of gear (unlike Department 179, incentive depreciation doesn’t apply to rent equipment).
For instance, if a company spends $700,000 on gear, it will first elect the $500,000 Section 179 deduction. Additionally, it can deduct 50 percent of the remaining $200,000, which equals $100,000. In the end, the business will have the ability to deduct $600,000 about the $700,000 buy.
The bonus will phase down to 40% in 2018 and 30% in 2019.
$2 Million Spending Limit
Under the Protecting Americans from Tax Hikes (PATH) Act of 2015, companies can spend around $2 million on equipment before the Section 179 deduction is significantly reduced. In other words, if you spent $2 million on equipment, it is possible to deduct $500,000 using Section 179. But if you invested $2.1 million on gear, you will only be able to deduct $400,000. Should you invest $2.5 million or more about equipment, you cannot subtract anything under Section 179.
Bottom Line
Section 179 is a very simple way for small businesses to spend less on their taxes. Businesses of all sorts need gear, so chances are, you will have the ability to use Section 179 to claim a tax deduction. Use our Section 179 calculator to estimate how much money you can save. If you have any questions about equipment finances, read our Ultimate Guide to Equipment Leasing.
If you’re still contemplating equipment financing we recommend seeing a direct lender like Balboa Capital for your most competitive rates. With a credit score above 650 and a minimum of 3 years in business, you could qualify for around $250K in funding.
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