SECTION 179 AND BONUS DEPRECIATION TAX SAVINGS
"Don’t put off until tomorrow what you can do today,” Benjamin Franklin once advised. This timeless wisdom applies in many business scenarios, from taking advantage of growth opportunities to claiming tax deductions. As businesses enter the fourth quarter and year-end is quickly approaching, many are considering purchases and knowing about the available tax incentives is an important aspect of the decision. In general, business owners should jump on tax-saving opportunities as soon as possible due to the time value of money. Two especially lucrative breaks for businesses are the expanded first-year bonus depreciation deduction and the first-year Section 179 deduction. Both allow you to accelerate deductions for qualifying purchases of property including tractors and construction equipment. With equipment inventories lower than normal, this year it is more important than ever to plan ahead now for year end tax management and next year's equipment needs. Mason Tractor Co. will put in the time and effort today to help organize your Section 179 purchase before 12/31/21. Here’s what you should know.
Section 179 deduction
Your business can elect to expense the cost of any Section 179 property and deduct it in the year the property is placed in service. The TCJA expanded the Section 179 deduction for qualifying assets placed in service in tax years beginning in 2018 and beyond. The maximum Section 179 deduction is $1 million for 2021.
First-Year Bonus Depreciation Deduction
Alternatively, businesses can deduct 100% of the cost of certain assets in the first year they’re placed in service under the new-and-improved bonus depreciation program. This federal tax break applies to qualifying new and used equipment placed in service between September 28, 2017, and December 31, 2022. Most categories of tangible depreciable assets — other than real estate — qualify for this break.
Which is right for you?
When both 100% first-year bonus depreciation and the Section 179 deduction privilege are available for the same asset, you generally should claim 100% bonus depreciation, because there are no limitations on that break. However, in some situations, Section 179 expensing can be advantageous. For example, it can be used to fine-tune annual deductions, doesn’t cause uniform capitalization (UNICAP) problems, and covers certain improvements to nonresidential real property that aren’t eligible for bonus depreciation. The availability of the two deductions provides greater flexibility than just bonus depreciation alone.
Weigh your options
A tax professional can discuss whether bonus depreciation, Section 179 expensing, regular MACRS depreciation or a combination of these methods makes the most sense for your business. There’s no right answer for everyone, but the current tax law provides a lot of flexibility in deducting purchases of new and used equipment.
We Can Help
If your business had a strong year this year, a new piece of Kubota construction equipment, a new Kubota tractor or a new piece of pre-owned equipment can make good use of the tax incentives available and help you continue to grow your business. Again, with equipment inventories lower than normal, this year it is more important than ever to plan ahead now for year end tax management and next year's equipment needs. Mason Tractor Co. will put in the time and effort today to help organize your Section 179 purchase before 12/31/21. See your tax advisor then come see us to learn more about what we can do to help you. We look forward to helping you build your business and keep your money working for you!