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What is the Section 179 Deduction?

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  • Written By: Ken Black
  • Edited By: Bronwyn Harris
  • Last Modified Date: 07 October 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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The Section 179 deduction refers to the portion of the US Tax Code dealing with deductions that businesses may choose to take advantage of for equipment purchases. To help encourage businesses to invest in themselves, this provision was created in the tax code. A Section 179 deduction can not only help businesses save a substantial amount of money that would otherwise be paid in taxes, it can provide a boost to the economy as well.

The way that the deduction for a piece of business equipment has typically worked is that the business was able to deduct a little each year. That deduction was typically tied to the depreciation of the equipment. For example, if a machine was purchased for $100,000 US Dollars (USD) and was expected to last 10 years, the business may be able to deduct $10,000 USD each year for 10 years. While that tax deduction is valuable, businesses can use the Section 179 deduction to get that benefit much sooner. In fact, the Section 179 deduction allows businesses to deduct the entire cost of the qualifying equipment from taxes in the year it was purchased.

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This can provide a number of different benefits. First, the business no longer has to wait to get the tax benefits available from buying the machine. That means there may be more of an incentive to purchase equipment that much sooner, as there is no benefit to waiting. Second, that investment will only help other businesses, which will make the machines and parts for the machines.

The Section 179 deduction does have some critics. Some have started calling the deduction the Hummer™ deduction or the SUV deduction. It is true that businesses can use the Section 179 deduction to deduct the cost of such vehicles from their taxes. However, they must be used for a business purpose.

The condition that applies to cars, in actuality, applies to all such equipment that is used to take advantage of the Section 179 deduction. Machinery and equipment, furniture, fixtures, single-purpose agricultural structures and storage facilities can all take advantage of this portion of the tax code. Even computer software bought off the shelf is eligible for this deduction, as long as it is used for the business.

While the Section 179 deduction is a positive development in the minds of many business owners, small and medium-sized businesses will get more use out of it than large companies. This is because only $250,000 USD can be written off in a single year. While this amount will increase regularly, if not annually, this limits its truly effective use mainly to those smaller businesses who will not be making many equipment purchases.

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