179 tax deduction

Basic Guidelines about 179 Tax Deduction

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Basic Guidelines about 179 Tax DeductionThe good thing about paying taxes is that you can claim deductions as long as fulfilling the requirements. One of the types is called 179 tax deduction and it is quite beneficial for business owners. What can it do?

179 tax deduction

We often call it section-179 and it allows businesses to reduce full expenses of capital possession instantly rather than decreasing them over their useful lifespan. These include an item like equipment and furniture.

To understand better about this tax deduction, you need to learn how it works. Fortunately, it only requires three basic procedures that will be discussed in this article.

Also read : Business Tax Preparation 101 – Basic Knowledge to Prepare Annual Business Tax

179 Tax Deduction – the Process

For business owners, you can get benefits from this deduction by following the correct procedure. What are they?

Don’t postpone it

One of the rules to be qualified in a 179 tax deduction is to start using the asset right away. This tax form requires you to start using the asset in your office or business to take the tax reduction.

Let’s take an example of it. If you buy equipment in February 2022, but don’t start using it until 2023, you need to wait until 2023 to claim the deduction for it. Always pay attention to the date!

You should ensure the asset is qualified

The primary qualification for that deduction is that your asset must be concrete or tangible. These include physical property like equipment, furniture, computers, software, and many others.

That means assets like copyrights and patents don’t qualify it. It is a little bit tricky when it comes to land and buildings. These items cannot be included in the 179 tax form. However, various items attached to the buildings can.

These include air conditioning units, alarms, fire suppression systems, and others. As a business owner, you must be more cautious about items that can and cannot qualify the deductions.

Deduction claim

Here is a fact. You can make the claim the deduction along with form 4562 part I. When making a claim, you should include some information. These include the cost of the property, description, and many others.

The capital possession should be purchased

What does it mean? The concept is quite simple. Any leased property doesn’t qualify. The assets should be purchased or at least they are used more than half of your business.

Here is a simple concept to understand. An asset that you use for a living but sometimes you use it for business won’t qualify this tax form. To be eligible, the building should be primarily used for business.

The meaning of purchased assets is quite clear. You must spend money to acquire it, instead of getting it from a related party like spouses, grandparents, siblings, charitable organizations, and many others.

The Help from an Expert

Some experts or those who often work on the 179 tax form would recommend taking advantage of a bench. The purpose is to get the smallest tax bill and tax season. What you should do is get a bench subscription.

This way, you can get a pro-tax service in a year, as well as the automated bookkeeping feature. Those tax experts are available to help you maximize the benefits of every deduction.

To be clear, a bench is a virtual bookkeeping service powered by real people. This service consists of a dedicated bookkeeper and several experts related to small business activities.

With their help, you don’t have to face difficulties when importing bank statements, preparing financial statements each month, and categorizing transactions. The good news is you can get a free service in the first month.

Also read : Getting to Know a CPA Tax Preparer and Why You Need It

Pay Attention to The Limits of Section 179

There is a big mistake when it comes to claiming the 179 tax form. People often ignore the presence of limits. The fact is some limitations apply to it. Some of them are:

Deduction starts vanishing after spending more than $2,500,000

In the year 2021, people can spend more than $1.050.000 on qualified property. This number increase for the current tax year, though. Here is the most interesting part. You will get deductions based on a dollar-to-dollar basis once you spend more than $2.600.000 for qualified property.

The limit is your net income

As mentioned earlier, some limits apply in the 179 deductions. One of them is limited to the net income of your business. Simply said, you cannot deduct more money than you can make.

For those who have a net income of $60,000 (before claiming the deduction) and buy $70,000 worth of qualified property, the limit of your deduction is based on the net income. In this case, the limitation is $60,000.

Also read : Things to Know about Daycare Tax Deduction: Requirements and Trivia

What About Vehicles?

What we have talked about above is related to the 179 tax deduction that applies to business assets like equipment and building. What about vehicles? Can you claim it? It is possible even though there is a limitation.

According to the rules, the limit is around 11,160 for trucks and vans. The good news is your vehicles can still qualify, as long as they are used for business purposes only. You also need to prove it first.

If you are not sure to determine what vehicles may qualify for the 179 tax form, here is the helpful list:

  • heavy construction equipment
  • Tractor-trailers
  • Cargo van
  • Airport shuttles

Important Key Points to Remember

To learn more about this tax deduction, you can simply learn these key points:

  • All businesses (small or big) that finance, buy, or lease business equipment are qualified for 179 deductions. The spending limit is around $3,600,000.
  • As the business owner, you must buy the equipment between the first day of the first month and the last day of the month. That means you must buy it within the tax year.
  • As long as the equipment is new to you as the user, you can get tax deductions. That means the product should not always be brand new. Even a second-hand item is qualified.

Verdict

All small business owners should take advantage of the 179 tax deduction. It would reduce the tax cost that you need to pay within the year. This even becomes more useful when you decide to buy the required equipment and machinery before the end of the year. Even if you have never done this before, help from a tax advisor and accountant is quite useful.

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