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. If you finance a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. This deduction is good on new and used equipment and off-the-shelf software. To take the deduction for the tax year 2022, the equipment must be financed or purchased and put into service between January 1, 2022, and the end of the day on December 31, 2022. This deduction is not automatic and must be elected. To elect to take the deduction, you’ll need to fill out Part 1 of IRS form 4562.
All businesses that purchase, finance, and lease new or used business equipment during the tax year 2022 should qualify for the Section 179 Deduction (assuming they spend less than $3,500,000). Congress has stopped the Section 179 roller coaster of the past few years and has made the Tax Deduction limit permanent. The limit is $1,000,000 for 2022 and beyond. This is wonderful news for small and medium businesses, as they know that the deduction will be there for them early in the year.
The equipment, vehicle(s), software, or HVAC hardware must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Therefore, multiply the cost of the equipment, vehicle(s), and software by the business use percentage to arrive at the monetary amount eligible for Section 179.
Under Section 179, you can deduct the cost of tangible personal property (new or used) that you finance for your business if the IRS has determined that the property will last more than one year. Examples of tangible personal property include computers, business equipment, machinery/heavy equipment, and office furniture.
There are caps on the total amount written off ($1,000,000 for 2022) and limits on the total amount of the equipment purchased ($2,500,000 in 2022). In addition, the deduction begins to phase out on a dollar-for-dollar basis after $2,500,000 is spent by a given business (thus, the entire deduction goes away once $3,500,000 in purchases is reached).
Calculate your savings and request a quick quote from Envision Capital Group