Maximizing your tax deduction potential with Section 179

It’s September which means we’re almost to the fourth quarter where most businesses look ahead towards end of year activities, it’s not unusual for us to see an increased interest in locking down new equipment and upgrades before year end.

Each year we begin promoting the benefits of Section 179, you can learn more about it in our updated guide for 2023 or continue reading.

In a nutshell, Section 179 is a tax savings benefit that allows you to deduct the cost of equipment you use for work from your (in some cases up to 100% of the total cost) from your tax expenses. When used correctly, this means you can purchase upgrades for your business and receive that money right back into your business when you file the following year.

Section 179 is a permanent part of the tax code here in the United States but that doesn’t mean it’s static. Each year the deduction limits are adjusted for inflation. You can see on the chart below what this year’s limits are.

You can choose to take the deduction in one lump sum or take a deduction for depreciation each year instead – it’s completely up to you.

What equipment or technology purchases qualify for Section 179?

1. New Equipment: This includes computers (as long as they’re used in your business at least 50 of the time), servers, backup devices, phone system hardware and more.
2. Components: Such as hard drives and solid-state drives, RAM, video cards, monitors and more.
3. Refurbished Equipment: You don’t have to buy new equipment to qualify for Section 179, in fact if you’re in the market for a new server and have been debating new vs refurbished, we have an article where we weigh in here. Equipment can also be financed or leased and still qualify.
4. Software: If you’re looking to purchase software upgrades for your business this year – such as upgrading an older copy of Windows to the latest version – these would also qualify.
6. Professional Services: Even professional services like ours can possibly be deducted under Section 179.

We find many businesses are looking to make purchases before the year end because that’s when a clearer picture of their financials is available but be warned. For a purchase to qualify in 2023 these purchases must be made before December 31^st. Even if the purchase was planned as part of this year’s budget, if it’s purchased January or later it will not count for this year’s taxes.

If you’re looking for the exact math on a potential purchase and the savings you will net, we can recommend this calculator, it has been updated for 2023. It’s also important to note that the ceiling for your particular business is your net income, you cannot deduct more money than you made that year, however you can carry the deduction forward to the next year.

We’ve spent some time discussing what does qualify under Section 179, but what about what doesn’t? The following items would not qualify under Section 179:

1. Intangible Assets: This would include things like patents or copyrights as an example.
2. Land: You cannot purchase land and claim a deduction for Section 179.
3. Purchased from family: Unfortunately, you cannot claim purchases that are made through a family member. Even if the product itself would normally qualify, if the item was purchased through a sibling, parent’s or spouses’ separate business it will not qualify.

Interested in making technology upgrades in your business and utilizing Section 179 in 2023? Valley Techlogic can help, we offer procurement services as well as technology solutions that are covered by this very useful tax code. Learn more today by scheduling a consultation.

Looking for more to read? We suggest these other articles from our site.

This article was powered by Valley Techlogic, an IT service provider in Atwater, CA. You can find more information at https://www.valleytechlogic.com/ or on Facebook at https://www.facebook.com/valleytechlogic/ . Follow us on Twitter at https://twitter.com/valleytechlogic.