Section 179: A Boost for Farmers and Small Business Operators.
If you’re a small business owner, operator, or a farmer of any sort, chances are high your tax accountant has mentioned the Section 179 Deduction to you in the past. If not, or if you’re looking for a refresher, here’s a quick little summary of this important piece of tax code and how it could have significant impacts on your business.
Section 179 Overview
What Section 179 of the tax code says, simply put, is that small businesses can write off the entire cost of a piece of equipment (new or used) that’s purchased and put into use during the 2020 calendar year. Historically depreciation and deduction rules have varied year to year. Recently, the federal government decided to make things easy (maybe they can do a few things right) and made the rule a straight forward full 100% deduction.
The purpose behind the regs is to serve as an incentive for small businesses to invest in themselves. Rather than depreciate equipment or significant purchases over time, small businesses can see immediate benefits by depreciating the entire cost and deducting it from their overall tax obligation for the year.
There really isn’t much for complexity within the rules. A small business is considered an organization that will make less than $2,590,000 in equipment purchases for the year. So long as your purchases for this equipment don’t exceed that threshold, you can deduct 100% of the cost. The total maximum write off amount is $1,040,000 for 2020. Whether that’s a single large piece of equipment or multiple smaller pieces, 100% is available under that purchase threshold. Beyond that limit, the benefit goes away at a dollar-for-dollar rate up to $3,630,000 in purchases.
As far as what type of purchases qualify under the statute, there are very few restrictions. Essentially it covers equipment (new or used) and/or software purchased or financed that has been placed in service at any point during 2020. The same rules apply for equipment purchased January 1 or December 31st, so long as the equipment is placed into service by the organization.
Calculate Your Savings
Here’s a simple example for you.
Let’s say you bought some new equipment and the purchase price for it totaled around $200,000. Let’s also say your operation would be in the 35% tax bracket. If you deducted the $200,000 price of the new gear your tax burden would drop by the sum of $200,000 x 35%, or $70,000. That would make the effective purchase price of the new equipment $130,000 instead of the original total of $200,000. ($200,000 Price – $70,000 Tax Savings = $130,000 Effective Price)
Click here to try an easy to use calculator and determine your own potential savings.
Like we said, chances are you may have already heard of this. If not, you’re welcome for the introduction. (Also, you may want to consider getting a new accountant.) For farmers, extractors and other businesses entering or growing within the hemp industry in 2020, being aware of instant savings like these could make the year significantly easier and more profitable.
READ THIS NEXT: 2019 Lessons Learned Part 3: Backup Plans