CPA Mark J. Kohler explains Section 179 depreciation, which lets businesses immediately expense up to $500,000 of equipment or vehicles in the year of purchase. Heavy SUVs and trucks face a $25,000 cap. He warns against buying assets just for the tax break and recommends consulting an accountant first.
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Hi, Mark Kohler here with a quick tax and legal tip. Let's talk about depreciation and the 179 deduction. Now, a lot of small business owners don't realize how important this tax deduction is. The last few years the ability to write off your equipment or a new truck or vehicle has been a disaster. The deduction has been all over the place. And that's what this 179 thing is about. Essentially the 179 deduction is the ability to depreciate a piece of equipment faster in the year you purchase it. A big write off right off the purchase price. Now you're not getting a deduction or a bonus or some sort of credit. It's just the ability instead of writing something off over seven years, you get to write off a big piece up front. That's how the 179 deduction came about, is to help us all go out and buy more stuff. A typical American thing to do, right? In the last few years it's bounced between 125,000 or 500,000 or 25,000. It has been a guessing game for small business owners. On December 18, 2015, Congress got together and passed the new law, the Protecting Americans from Tax Hikes act, or path. Now under this new law, they finally cleared up all this confusion and made the 179 depreciation deduction permanent. Now you can deduct up to $500,000 in the year of acquisition against the purchase price of new equipment or a qualifying vehicle. Now that could be a new car to you or used to someone else. It's fine. You can even do financing. This is a big deal. Let's talk about equipment first. A lot of small business owners need to go out and acquire new equipment every year. And why write it off over 5, 10, 15 years? Let's write it off right away. The 179 comes in and you could go out and get better tax savings by purchasing a piece of equipment and writing it off faster. However, the average small business owner loves to use this around the vehicle or SUV or big truck. And that's where you can deduct up to $25,000. If it's an SUV or truck that weighs more than 6,000 pounds but has a shorter truck bed than six feet. If you have a truck that weighs more than 6,000 pounds with a six foot bed or greater, or a passenger van or even an RV B, you can deduct up to the $500,000. And taking into account the business use percentage. You'll get to write off an amount depending on your situation. Now the last piece I want to add to this is bonus depreciation. Now bonus depreciation allows you to deduct up to 50% of a qualifying purchase in the first year. The 50% bonus depreciation allowance is through 2017. When you get to 2018 it goes to 40%. In 2019 it goes to 30%. Now in summary, you can see that there's a little bit of complexity here and a lot of numbers and moving parts. But here's the bottom line. You want to buy a big truck. You want to buy a car. You're looking to buy equipment. You want to talk to your accountant and see if you can get a deduction in for your business at the end of the year or anytime during the year where it makes sense for you. Now I always tell clients, don't chase bad expenses with good money. If you don't need to buy something, don't buy it. But if you need that piece of equipment or vehicle in Your business, the 179 depreciation deduction is extremely powerful and can help you better live that American dream and take your business to the next level. Thanks for listening and I hope that information was helpful and let me speak from the heart here. I've been talking about topics like this for 1015 years. I'm a CPA attorney, best selling author, radio show host and I am passionate about helping small business owners save taxes, build wealth and protect it. Please check out the link right here. Download my free ebook on 10 Common Mistakes Small business owners make in the tax and legal arena. Also check out my social media links here. I've got Daily Tips, a weekly blog radio show every week. This information is free and I'd love to help you. Click below. Find out more about me and thanks for listening.
