Jul 10 in General Tax Savings Discussion
Maximizing Deductions with a Section 179 and Bonus Depreciation Combo
Hey team,
Let's talk about a powerful duo for maximizing your deductions: Section 179 and Bonus Depreciation.
These two provisions can significantly reduce your taxable income by allowing you to write off the cost of certain assets more quickly.
Section 179 Expensing:
Section 179 allows you to deduct the full cost of qualifying equipment and software purchased or financed during the tax year. This deduction is aimed at encouraging businesses to invest in themselves by purchasing new or used business equipment.
Key Points:
- Deduction Limit: For 2023, the deduction limit is $1,050,000.
- Phase-Out Threshold: The deduction begins to phase out dollar-for-dollar after $2,620,000 in purchases.
- Qualifying Property: Includes machinery, equipment, vehicles, software, and certain improvements to non-residential real property.
Bonus Depreciation:
Bonus Depreciation allows businesses to immediately deduct a significant percentage of the cost of eligible assets. Currently, 100% bonus depreciation is available for qualified property acquired and placed in service before the end of 2022.
Key Points:
- Immediate Deduction: Deduct 100% of the cost of eligible assets.
- No Limit: Unlike Section 179, there’s no limit on the amount you can claim.
- Qualifying Property: Includes most new and used property with a recovery period of 20 years or less, such as equipment, machinery, and some software.
Combining Both:
Using Section 179 and Bonus Depreciation together allows you to maximize your deductions. First, apply Section 179 to fully expense qualifying assets up to the limit, then use Bonus Depreciation for any remaining cost.
Example:
Imagine your business buys $1.5 million worth of equipment. You could:
- Apply Section 179: Deduct $1,050,000 under Section 179.
- Apply Bonus Depreciation: Deduct the remaining $450,000 using Bonus Depreciation.
Total immediate deduction: $1.5 million, reducing your taxable income significantly in the year of purchase.
This strategy can provide a substantial tax benefit, especially in years when you have high capital expenditures. It’s a great way to invest in your business while keeping more money in your pocket.
Have any of you utilized Section 179 or Bonus Depreciation? How did it impact your taxes?
Let's keep the conversation going and share any tips or questions you have!
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Maximizing Deductions with a Section 179 and Bonus Depreciation Combo
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