Given that 82% of small businesses fail due to cash flow problems, it’s important to find ways to reduce expenses and overheads while staying competitive. 

The US government has recognized this dilemma and introduced a piece of law called Section 179, which allows businesses to offset the cost of some tech purchases and receive a tax break on them. Let’s take a closer look at how this works, and how it can help you make better use of your IT budget going forward. 

Section 179 explained

Section 179 is essentially a kind of tax deduction. It allows you to deduct the entire cost of qualifying hardware or software, up to a reasonable value, from your gross income for the tax year. What this means is that you’re no longer writing off equipment a little at a time through yearly depreciation. Instead, you can write off the entire purchase price at the one time. 

The whole point of Section 179 of the Internal Revenue Code is to encourage businesses to invest in their own success and stimulate the economy. Let’s see how it applies to small businesses.

Limitations

There are certain thresholds that apply to Section 179 purchases. You:

  • Can only write off the cost of leasing or purchasing a product up to the value of $1 million
  • Can’t spend more than $2.5 million on Section 179 equipment
  • Must use the product in the tax year you purchased or leased it 

The good news is that almost all business equipment, including IT infrastructure, falls under this allowance. It includes:

  • Off-the-shelf software
  • Office furniture and equipment 
  • Computers
  • Equipment purchased for business tech use 

How Section 179 benefits small businesses

You may be wondering how Section 179 applies to you and benefits your business. Here’s what you need to know.

  • Section 179 lets you purchase or lease equipment and software to help you run your business more efficiently. 
  • You can purchase improved cybersecurity software and security architecture without overstretching your IT budget.
  •  With Section 179, you can be clear on your deductions and how they affect your IT budget, which gives you certainty and confidence when planning ahead for next year. 

Section 179 is one of the few tax breaks that directly benefit small businesses – don’t be afraid to use it.

How to claim Section 179 deductions

The first thing to do to benefit from Section 179 is to purchase new equipment during the tax year and add up the costs of all purchases. Double-check with the IRS to ensure that your product qualifies, and then elect the deduction when you’re completing your tax return. 

Be sure to include records of your purchase, such as the cost, the exact equipment purchased, and when you purchased it. Consult a financial or tax professional if you’re unclear on how to proceed. 

Once you’ve completed the forms and submitted them to the IRS, you should be all set. 

Conclusion

By making full use of the tax breaks available to your business, you can improve your bottom line and allocate your IT budget more efficiently. For further details on how Section 179 applies to you, contact our team today.