You may have heard about the “Tax Cuts and Jobs Act of 2017.” It offered tax incentives for investments for new business equipment and software. Section 179 of this Act helped small businesses quickly recover the costs of certain capital expenses by writing off the cost of these expenses in the year of acquisition. Before this bill, business acquisitions were depreciated over several years. Our Clients First team works to help make manufacturing businesses grow by investing in technology to reduce costs and increase profits. Manufacturers don't need to delay making important investments because of today's economic uncertainty.
Smart investments help your manufacturing operation grow and be more profitable. For example, when our clients upgrade their ERP (Enterprise Resource Planning) software system to increase efficiency or purchase a piece of equipment to increase productivity, the investment qualifies for applicable small business investment tax write-offs. The good news is that these tax benefits have been extended from 9/27/2017 through 2022. Rather than wait, you can make investments today to propel your business forward and take advantage of valuable tax breaks.
What types of business equipment qualifies under Section 179?
- Computers and computer software – This includes computer hardware and software such as accounting, distribution and/or manufacturing ERP software.
- Business vehicles with a gross vehicle weight over 6,000 lbs. – What difference would an extra driver in your fleet mean to your bottom line?
- Equipment purchased for business use – This includes machines, scales, barcoding hardware, etc.
- Tangible personal property used in business - What investments could help your employees be more productive in the work-space? Would rolling podiums for laptops use in the warehouse or stand-up/sit-down versatile desks help?
What tax benefits were extended in Section 179?
- You get a 100% bonus depreciation deduction for the above qualifying business equipment placed in service from 9/27/2017 through 2022.
- “For tax years beginning in 2020, the maximum section 179 expense deduction is $1,040,000 ($1,075,000 for qualified enterprise zone property). This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,590,000. Also, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2020 is $25,900.” IRS (Internal Revenue Service)
- The limit on equipment purchases increased to $2.5 million. “Starting in 2018, the maximum deduction increased to $1 million. However, the deduction begins to phase out at $2.5 million. This deduction applies to tangible property, such as machinery and equipment purchased for use in a trade or business. Eligible property includes qualified real property and certain property used to furnish lodging. Qualified real property includes improvements to roofs, HVAC, fire alarm systems and security systems to nonresidential real property.” IRS
For example, here’s the potential tax benefit with a $1,000,000.00 investment found in an article by FitSmallBusiness:
| Cost of equipment |
$1,000,000.00 |
|
| 1st-year write-offs |
|
|
| • Section 179 |
$1,000,000.00 |
|
| • Bonus depreciation* |
$0.00 |
|
| * Regular 1st Yr Dep deduction |
$0.00 |
|
| Total deduction in 1st year |
$1,000,000.00 |
|
| Marginal tax rate assumed 21%** |
$210,000.00 |
|
| Bottom line equipment cost after-tax savings |
$790,000.00 |
|
This example assumes equipment purchased and placed in service from 2017 forward.
* 100% bonus depreciation after Section 179 deduction.
** Tax savings are assuming a 21% tax bracket.
What are the added benefits of financing and leasing equipment under Section 179?
Some finance agreements allow for leases of equipment or software with a $1.00 purchase option. This qualifies for Section 179 benefits. Capital leases―also classified as $1 buyout and 10% option leases―are typically much friendlier to your business from a tax standpoint, allowing you to depreciate the asset. This is not possible with most fair market value (FMV) leases, which tend to be classified as operating leases.”
Please note: We are not tax professionals and this is not intended to be tax, financial or legal advice. As certified ERP consultants, we believe this information may be valuable to our clients and readers. If you have questions or need more information, please contact your tax advisor.
Here’s what Clients First Business Solutions can do for your business
Clients First Business Solutions offers local businesses ERP software implementation, support, and training services. Since 2003 our business focus is to help businesses of all sizes implement business software for their organization. We have seven offices covering the entire United States. Our team is well versed in Finance, Supply Chain, Manufacturing, Project Accounting, EDI. We specialize in manufacturing, supply chain management, parts sales, maintenance, repair and overhaul (MRO), field service, project accounting, construction, aviation, industrial repairs, and nonprofit organizations. We also have a US-based development team to promptly address your needs.
Our goal is to help you improve your business processes, reduce overhead and realize a competitive advantage in your industry. Your business benefits from our team's expertise by increasing ROI and improving your bottom line. We offer an affordable Quick Turn Implementation plan including any legacy data, so you are operating more efficiently on the first day of use. We also offer full implementation services for more complex needs along with a US-based development team to tackle unique business challenges and scenarios. Our team supports Dynamics 365 solutions and Acumatica cloud ERP.
Please contact us to learn more – call 800-331-8382 or email info@cfbs-us.com.