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Now that the IRS Section 179 deduction permanently offers small businesses an immediate expense deduction of up to $500,000, some of the property you may have leased in the past could serve you better when purchased, at least from a tax deduction standpoint.

According to the IRS, this property may include specific equipment, vehicles, computer software or structures, including:

  • Tangible property (like office furniture or computers) acquired for business use.
  • Machinery or equipment that is integral in manufacturing, production or extraction, or that provides transportation (such as company vehicles), communications, electricity, gas, water, or sewage disposal services.
  • Off-the-shelf computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified.
  • Very specific buildings or structures including research facilities, storage facilities, or single-purpose agricultural (livestock) or horticultural structures, certain restaurant property, and certain commercial property improvements.

Section 179 is designed to help small businesses. If you don’t use the property solely for business purposes, don’t fret. You may still be able to deduct it at the percentage it’s used for business. For instance, if you use your laptop 80 percent of the time for business, you can deduct 80 percent of the purchase cost.

Estates and trusts cannot elect the Section 179 deduction, and property acquired by gift or inheritance does not qualify. Certain other situations may affect the $500,000 limit as well. These may include:

  • The cost of your section 179 property placed in service exceeding $2 million.
  • Your business being an enterprise zone business.
  • You placing in service a sport utility or certain other vehicles.
  • Whether you’re married and filing a joint or separate return.
  • Whether you’re a partnership, S corporation or another type of corporation.

Finally, having a dollar amount in place permanently can allow small businesses to plan ahead with their purchases. But with so many restrictions and exceptions to the rule, it’s important to consult a tax professional first. Before renewing or signing any leases on equipment, vehicles or other property this year, contact us to help you develop a game plan.Image Copyright: mavoimage / 123RF Stock Photo

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