Are you wondering how Section 179 can help your business before the end of the year? Here is your guide for navigating the Section 179 Deduction for 2023.
2023 Deduction Limit = $1,160,000
This deduction is good on new and used equipment, as well as off-the-shelf software. To take the deduction for tax year 2023, the equipment must be financed or purchased and put into service between January 1, 2023 and the end of the day on December 31, 2023. This is up from $1,080,000 in 2022, a full $80,000 increase from last year. This means U.S. companies can deduct the full purchase price of ALL qualified equipment purchases, up to the limit of $1,160,000.
2023 Spending Cap on Equipment Purchases = $2,890,000
This deduction is valid until you reach $2,890,000 (up from $2.7 million in 2022) in purchases for the year. This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced on a dollar-for-dollar basis. Section 179 helps small and mid-sized companies invest in themselves. The full $1,160,000 deduction can be claimed up to the $2,890,000 equipment purchases limit. Once that number is reached, the Section 179 deduction decreases dollar-for-dollar and reaches zero once $4,050,000 worth of equipment is purchased/financed.
Bonus Depreciation: 80% for 2023
Bonus depreciation is generally taken after the Section 179 spending cap is reached. In addition, businesses can take advantage of 80% bonus depreciation on both new and used equipment for the entirety of 2023. Remember to keep supply chain issues and delivery times in mind when making your Section 179 purchases for 2023, as equipment must be purchased and put into service by midnight 12/31/23.
For more details on limits and qualifying equipment, as well as Section 179 Qualified Financing, please read the Section 179 website carefully.
About the Section 179 Deadline
The Section 179 deduction has proven popular with small and mid-sized companies, but there is a deadline. In order to take advantage of the deduction for tax year 2023, the equipment must be financed or purchased and put into service between January 1, 2023 and the end of the day on December 31, 2023.
Section 179's "More than 50 Percent Business-Use" Requirement
The equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for Section 179.
How Section 179 Works
In years past, when your business bought qualifying equipment, it typically wrote it off a little at a time through depreciation. In other words, if your company spends $50,000 on a machine, it gets to write off (say) $10,000 a year for five years (these numbers are only meant to give you an example). Now, while it is true that this is better than no write-off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it.
And that’s exactly what Section 179 does – it allows your business to write off the entire purchase price of qualifying equipment for the current tax year. This has made a big difference for many companies (and the economy in general). Businesses have used Section 179 to purchase needed equipment right now, instead of waiting. For most small businesses, the entire cost of qualifying equipment can be written off on the 2023 tax return (up to $1,160,000).
Limits of Section 179
Section 179 does come with limits – there are caps to the total amount written off ($1,160,000 for 2023), and limits to the total amount of the equipment purchased ($2,890,000 in 2023). The deduction begins to phase out on a dollar-for-dollar basis after $2,890,000 is spent by a given business (thus, the entire deduction goes away once $4,050,000 in purchases is reached), so this makes it a true small and medium-sized business deduction.
The above information and further details on Section 179 can be also found at www.section179.org.
Reference: Section179.org
Disclaimer: Tax information should be reviewed by your accountant.