Disclaimer: ** The Section 179 deduction cap for 2022 has been increased to $1,080,000 with a $2,700,000 equipment spending cap. The prior 2021 Section 179 tax deduction was set at a $1,050,000 cap with a threshold of $2,620,000 in total purchases.
** If you spend less than $3,780,000 (up from $3,670,000), all businesses that buy, finance, lease, or rent new or used business equipment in 2022 should be eligible for the Section 179 Deduction. **
A Tax Code That Helps Businesses Save!
Do you know about the IRS tax code Section 179 on qualifying truck, trailer, and equipment purchases?
Read on to learn how Section 179 can benefit your growing trucking business and help you purchase your next truck or equipment. Amid the pandemic, economic downfall, global chip shortage, Section 179 is a ray of sunshine. Don’t wait; time is running out, so talk to your tax advisor today about Section 179.
What is Section 179?
IRS tax code Section 179 enables businesses to deduct the total purchase price of qualifying equipment and/or software purchased or financed during the tax year (January 2021-December 2021). That’s 100% back in your pocket! The U.S. government created the Section 179 code to encourage businesses to buy equipment and invest in themselves. Section 179 benefits small businesses — it’s one of the few government incentives available to small businesses. Millions of small businesses have taken advantage of this code and reaped the benefits.
Section 179 use to be known as the SUV tax loophole or the Hummer deduction because businesses used this tax code to write-off vehicle purchases like SUVs and Hummers. However, Section 179 now has current limits on business vehicles.
One important qualification to keep in mind is that vehicle(s) and/or software must be used for business purposes more than 50% of the time. You can figure out the amount by multiplying the cost of the equipment, vehicle(s), and/or software by the percentage of business use.
Learn more about Section 179 here.
How does Section 179 work?
In the past, when your business purchased equipment, it was written off a little by little through depreciation. Today, most business owners would prefer to write off the entire equipment price for the year they buy it. With Section 179, you can write off the full purchase price of qualifying equipment for the current tax year.
Writing off the equipment purchase in the current tax year helps businesses purchase needed equipment right now. For small businesses that qualify, the entire cost of qualifying equipment can be written off on the 2021 tax return (up to $1,050,000).
Here’s a handy summary:
• 2021 Deduction limit: $1,050,000
• 2021 Spending cap on equipment purchases: $2,620,000
• Bonus depreciation: 100% for 2021
What limitations does Section 179 present?
Section 179 does have limitations. There are limits to the total amount written off ($1,050,000 for 2021) and to the total amount of purchased equipment ($2,620,000 in 2021). The deduction decreases after $2,620,000 is spent by a given business (thus, the entire deduction is eliminated once $3,670,000 in purchases is reached). These caps make this deduction worth it for small and medium-sized businesses.
Who qualifies for Section 179?
All businesses that purchase, finance, and/or lease new or used business equipment during the tax year 2021 should qualify for the Section 179 deduction, if they spend less than $3,670,000.
To qualify for the Section 179 Deduction, the equipment and/or software purchased or financed must be placed into service between January 1, 2021, and December 31, 2021.
How does bonus depreciation work?
Bonus depreciation is offered sometimes. In 2021, it’s provided at 100%. You can apply for a 100% bonus depreciation after the Section 179 spending cap is reached.
Bonus depreciation applies to used equipment, while both new and used equipment qualify for the Section 179 deduction
Section 179 is taken first when applying these provisions, followed by bonus depreciation unless the business had no taxable profit.
Calculate Your Savings
Let’s use a 2020 Kenworth W900 as an example. If you purchased a Kenworth W900 truck from a dealer in 2021, you could write off the entire truck purchase in 2021. That’s more than $50,000 in cash savings! If you operate as an S-Corp or LLC trucking company, this could potentially save you thousands of dollars on your 2021 tax bill.
Once you’ve calculated your savings and spoken with your tax advisor, you should get pre-qualified for a loan on your next commercial truck with America’s most trusted equipment finance company – Commercial Fleet Financing! We have the best finance programs with the most flexibility to suit your specific needs.
Start that process now and fill out our Credit Application online to get pre-qualified for your purchase.
Fast Budgeting Tools to Determine Profits
Commercial Fleet Financing is committed to offering our clients and dealers unique tools to help them make informed buying decisions. Our Budget Builder tool enables you to determine the profitability of your desired equipment purchase. This free tool will help you estimate your business profit.
Don’t forget to contact your tax advisor for more information on how to get started taking advantage of one of the most important tax codes for your business. Use IRS form 4562 to start gaining this great business investment.