Why You Should Take Advantage of Section 179 Year-End Deductions for Equipment Financing
The end of the year is near, but there’s still plenty of time for your business to reap the reward offered by the tax rules governing the purchase or lease of trucks, construction equipment, and other commercial capital expenditures.
The time is right for tax savings.
Under its Section 179 deduction regulations, the IRS provides tax relief for businesses that invest in capital. The Section 179 rules apply to the purchase of a range of business equipment, including commercial trucks or heavy construction equipment, that are purchased and put into use during the current tax year. That means that if you finance a truck now, before the end of the year, you’ll be able to take advantage of tax savings that will have an impact on your business’ balance sheet for the entire year. Get that new semi truck rolling by the end of the day on December 31, and it qualifies.
It’s a great idea for small businesses.
The Section 179 rules were written specifically with small businesses in mind, and they provide a real benefit for the companies that need it the most. The limit for write-offs in a single year is $500,000, and the deduction begins to phase out when a company spends more than $2,000,000 per year on equipment. That limits the rules’ effectiveness for large companies, but the limits keep the deduction working for small companies that will see the greatest benefits from it.
It’s a solid boost to your bottom line.
Buying a truck now and writing off the vehicle’s depreciation and interest expenses over time will help you to reduce your tax liability in the long run, but the Section 179 rules offer a deduction strategy that can help your business even more. Under the section’s rules, if you buy a vehicle or finance it through a qualifying lease, you can write off the full value of the vehicle in the year that you put it into service.
The advantage of that strategy is clear. You’ll be able to deduct the truck’s entire value during the current year, even though you haven’t yet paid the truck’s full value in payments. Even better than that, the tax savings you’ll realize from the deduction are likely to be more than your outlay for lease payments, meaning that the lease will be a net win for your bottom line this year.
The financing options keep you flexible.
In general, the Section 179 deduction applies to equipment or vehicles that you purchase, but some financing arrangements allow you to lease the equipment and still take advantage of the deduction.
A non-tax capital lease is a leasing arrangement that qualifies for the deduction because you, rather than the leasing entity, are considered to be the owner of the equipment. One common type of non-tax lease is called a $1 Buyout Lease; under this arrangement, you pay a fixed monthly lease payment, but you become the owner of the equipment at the end of the lease term with a $1 payment. Another type of non-tax lease, the 10 percent PUT Lease, gives you the option to purchase the equipment for 10 percent of the original cost at the end of the lease term.
Other types of qualifying arrangements are known as Equipment Finance Agreements. These agreements are structured similarly to leases, but they are designed to keep ownership with you and not the lessor, thereby allowing you to take full advantage of the 179 deduction.
These deductions can have a significant positive effect on your business, but in order take advantage of them, you have to finance your truck or equipment with a properly structured agreement, and you have to do it now. Visit our site or call us at 801-386-8222 today and see how we can add value to your business.