If you invested in equipment this year or are considering doing so, your purchase may qualify for the Section 179 tax deduction.
The deduction is favorable toward equipment, software, and other technology investments in 2021. Such investments are vital for organizations looking to add to their existing capabilities. For example, incorporating a laser into your shop can expand your cutting, marking, and engraving capabilities and reduce your need to outsource services. In addition, as businesses recover from the effects of the COVID-19 pandemic, laser capabilities can also help increase business continuity and growth.
Below we have outlined the basics of Section 179 to help you determine if your purchase qualifies or if you should take the leap on a laser investment before the year is over.
What is Section 179?
Essentially, Section 179 of the IRS tax code allows businesses to deduct the total purchase price of qualifying equipment and software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the total purchase price from your gross income. It's an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves.
Section 179 of the tax code has been around for a while, so there is a chance you've deducted a purchase under it before. However, the details and requirements for deductions change each year. Section 179 helps small and medium-sized businesses make valuable business purchases by allowing them to write off the entire investment the same year it qualifies, rather than writing the purchase off in increments over several years.
Considering the value of the Section 179 deduction and the increasing demand for laser capabilities, now is an excellent time to pursue the laser purchase you've been putting off.
Section 179 Specifications
To qualify, your laser's purchase and actual implementation has to occur within the 2021 tax year. Below are specific points to keep in mind.
• Deduction limit: $1,050,000
• Spending cap: $2,620,000
• Bonus depreciation: 100%
What does this mean for your organization?
In summary, if you buy or finance equipment in 2021 and meet the requirements, you can deduct the full purchase price from your gross income. In addition, if your purchase exceeds the $1,050,000 limit, you can use the 100% bonus deduction for your overage. And if you finance your equipment purchase, you can deduct the entire purchase price even if you don't pay the whole purchase amount in 2021.
Because we are halfway through the year, now is a good time to start thinking of any final steps you can take as a business owner to lower your taxes for the fiscal year. For example, if you have been thinking about buying a fiber laser system to add to your shop's floor, you should consider doing so soon as lead times are typically 12-16 weeks out.
Example Real-World Calculation
Here's a sample Section 179 calculation for a high powered FabLight laser. In this case, the business is in a tax bracket of 32%. From what we learned earlier, the entire cost of the equipment can be deducted from the business gross income, meaning that the net cost is only $74,800 - this is a savings of $35,200. As you can see, Section 179 is powerful and allows businesses to stay competitive in the marketplace.
How does this work with equipment financing?
Even if equipment is paid for through financing over multiple years, you can still deduct the full purchase price financed during the tax year. If you're interested in financing, FabLight offers an easy application through Amur Equipment Finance, one of the nation's top 5 equipment finance companies serving enterprise as well as start-ups.
Purchasing or upgrading to new equipment can produce several benefits for your business. Fortunately, tax breaks can help you afford the equipment you need. We encourage you to talk with your tax advisor to determine which breaks you can use so that you can choose the best course of action for you and your business.
About 3D FabLight
3D FabLight was founded in 2015 with a mission to break down the barriers to advanced flexible manufacturing using lasers and software. Our team has decades' worth of experience designing laser cutters and machine tool software.
With 3D FabLight, you get the best of both worlds. Not only do you receive our remarkable laser cutting technology guaranteed to meet your cutting needs, but you also get access to our team of dedicated professionals. We provide every customer with top-notch service, answering questions and helping them to personalize their needs. In addition, our team is available for software support. To request a demo, click here.