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New Small Business Tax Deductions Under Section 179

A first step for businesses in preparing their small-business tax return is to review the year’s financing and purchases of new or used equipment for maximum depreciation write offs.

Taking the depreciation in the year it was purchased

More importantly, for tax year 2018 SMBs need to take advantage of the IRS Section 179 deduction. It’s part of the American Recovery and Reinvestment act (ARRA) enacted back in February 2009.

Since it became law, the amounts of the deduction has varied, beginning with an annual limit of $10,000 until reaching a limit of $500,000—it was increased to $1,000,000 permanently with the passage of The Tax Cuts and Jobs Act in January 2018.

Prior to the 179 deduction, businesses had to follow traditional depreciation schedules: they could only deduct a portion of the value of the equipment (or software) each year.

Today, Section 179 allows businesses to deduct the full value if the new or used equipment (or off-the-shelf software) in the same tax year the purchases were made on the last day of 2018.

Types of property

The 179 deduction applies to tangible property, but only if the IRA has determined it will last for more than one year. Included in the list:

  • Computers
  • Software
  • Office furniture
  • Business vehicles (6,000 pounds plus)

The 179 deduction allows owners to take the entire depreciation in the year it was purchased—including software.

Non-qualifying deductions

A few examples include:

  • Land and permanent structures
  • Furnaces or air conditioning units
  • Intangible property such as copyrights or patents
  • Any property mean for use outside of the U.S.
  • Any personal property converted to business property that is used less than 50 percent of the time on business needs.

‘Net taxable’ qualifier

If the depreciation totals more than the business’s net taxable income for the year, the ‘179’ deduction is not allowed.

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