As the year draws to a close, it's essential for businesses to explore every opportunity to optimize their financial health. One often-overlooked avenue is taking advantage of tax incentives like Section 179 and Bonus Depreciation. These tax provisions can potentially save your company a significant amount of money while promoting business growth and investment.
Section 179: A Game Changer for Businesses
Section 179 of the Internal Revenue Code is a powerful tool that allows businesses to expense the full purchase price of qualifying equipment and software acquired during the tax year. This deduction enables you to deduct the entire cost of eligible assets, rather than depreciating them over several years.
Key Changes in 2023:
The Tax Cuts and Jobs Act (TCJA) increased the deduction limit to $1.16 million, and the phase-out threshold to $2.89 million for 2023. This means that small and mid-sized businesses with an annual equipment budget of less than $4.05 million can benefit from Section 179.
Bonus Depreciation: An Added Advantage
Bonus Depreciation, another valuable tax incentive, allows businesses to deduct additional depreciation for the cost of qualifying business property in the first year, beyond normal depreciation allowances. This bonus depreciation applies to both new and used equipment, as long as it's "first use" by the purchasing business.
Changes in 2023:
In 2023, businesses can leverage an 80% bonus depreciation rate. However, it's important to note that this rate is set to decrease over the coming years, making it advantageous for businesses to make near-term capital purchases.
How Can Both Deductions Work Together?
Combining Section 179 and Bonus Depreciation can maximize your benefits. IRS rules require businesses to apply Section 179 first, followed by bonus depreciation. Here's why this combination can be advantageous:
Limited Circumstances for Stand-Alone 179 Benefits: Section 179 primarily benefits businesses with specific circumstances. With bonus depreciation now covering new and used equipment, it's a more versatile option.
Short-Term Consistency with Bonus Depreciation: The 80% bonus depreciation rate in 2023 provides a significant incentive for businesses to make near-term purchases, reducing their overall tax liability.
Expands Qualifying Equipment Beyond Physical Hardware: Section 179 and bonus depreciation cover not only physical equipment but also software. This means a broader range of businesses can benefit from these tax incentives.
Calculate Your Potential Savings:
To determine how Section 179 and bonus depreciation can affect your business tax deductions, consider using a calculator that factors in your equipment cost and other relevant details. This can provide you with a clearer picture of potential savings.
How Preferred Office Technologies Can Assist:
At Preferred Office Technologies, we understand the importance of optimizing your tax benefits while investing in essential office technology. Our experienced team can help you identify the right equipment and software solutions that qualify for Section 179 and Bonus Depreciation. We specialize in providing you with cost-effective, financing options to ensure you are making the most of your investment.
$1 Buyout leases are the most common financing option that allows you to take full advantage of the Section 179 tax benefit. Lease options are available for your next technology purchases, including phone systems, servers, computers, multifunction printers and more in 2023.
Conclusion: Section 179 and Bonus Depreciation
As the year-end approaches, take proactive steps to leverage Section 179 and Bonus Depreciation to reduce your tax liability while investing in the growth of your business. These tax incentives provide a win-win scenario by encouraging capital expenditures and promoting long-term business development. Preferred Office Technologies is your trusted partner in making the most of these tax benefits, ensuring that your equipment and software investments provide both short-term and long-term value for your business. Don't miss out on the potential tax savings that can transform your financial outlook in 2023.