What Should Denver Businesses Know About Section 179?
As 2021 winds down, Denver businesses can start spending their remaining dollars to take advantage of the Section 179 tax deduction. Under the Section 179 tax deduction, businesses can deduct the purchase price of business-related hardware and off-the-shelf software.
For many businesses, purchasing equipment in December is common. During December, more businesses are trying to reduce their tax burden by making equipment and off-the-shelf software purchases that can be written. If you have money remaining in your budget and you are not sure what you should do with it, or if you have plans to upgrade your equipment and software in 2022, now is a great time to purchase equipment.
The Section 179 deadline is December 31, and there will be a rush to get as many purchases in as possible. Hence, you should anticipate December being a busy month for many Denver organizations.
What Is Section 179?
Section 179 is the tax deduction that allows businesses to write off full purchase prices of qualifying new and used equipment purchased during the calendar year. Businesses can deduct the total cost of all qualifying hardware and off-the-shelf software purchased during the year, up to $1,050,000 in 2021. If a business’s purchases exceed $2.62 million, the deduction amount will be phased out on a dollar-for-dollar basis, equal to the amount over $2.62 million. Thus, Section 179 is very appealing, especially since the business gets needed equipment and software and an attractive tax write-off. Businesses can find more information about Section 179 at www.Section179.org.
While nearly any type of equipment that was purchased during the year will be considered a qualifying purchase, many businesses wait until the last month in the year to either make very specific purchases or make larger purchases. There are many reasons some businesses wait so late into the year. For some businesses, the months go by so quickly and the end of the year just sneaks up on them and they don’t want to miss out on such an attractive tax write-off. Other businesses take their time to see how the year pans out from a financial aspect. If everything lines up financially, businesses will buy the equipment and software and take the deduction.
Businesses that make qualifying purchases and put them into service by midnight on December 31, that business will be eligible to take the deduction. Purchases of business-use equipment, workplace furniture, laptops, software, and other technology assets qualify for Section 179.
- New equipment. Workstations, phone systems, servers, backup devices, hard drives, etc.
- Used equipment. Any of the previously mentioned equipment that has been pre-owned
- Off-the-shelf software. Software that has been made available to the public
How Can Your Denver Business Qualify for a Section 179 Deduction?
By now, you are probably thinking that Section 179 sounds too good to be true, but we assure you, it’s actually true. However, some stipulations in taking advantage of this write-off. Denver businesses may qualify for the Section 179 deduction if:
- A qualifying purchase is made during the tax year
- The equipment will be used for business purposes (more than 50 percent of the time)
- The equipment is put into service by December 31, 2021
Even though there are supply chain slowdowns, there have been no amendments made to Section 179 to account for any delays. Unfortunately, we predict there will be plenty of businesses that will have to pay for equipment in 2021 due to a late shipment. There will be many business leaders who will miss out on the huge deductions they were depending on.
This does not have to be your business. Here are some things you can do to ensure your Denver business qualifies for the 2021 Section 179 deduction:
- Make your Section 179 purchases as early as possible
- Purchase equipment that is in stock
- Avoid making special orders
- Consider purchasing used/preowned equipment
Should Denver Businesses Make Purchases Now?
Denver businesses that wait until December to make their Section 179 purchases may find themselves left out. These businesses may also find themselves paying for the equipment and software but not getting to write it off. Why? Qualifying assets must have been put into service prior to December 31, 2021.
The problem is the put into service aspect. Any equipment you buy for business use must be assembled, installed, plugged in, turned on, etc. If the purchased equipment has not been put into service, it will not be considered a qualifying purchase and your business will not receive the deduction. Your business has to do more than purchase the equipment. The equipment has to be put into service.
Depending on the equipment you purchase, there may be quite some time before you actually receive it. Not only do you have to factor in the chip shortage, but also the labor shortage, port closures, and delivery delays. The delivery delays are becoming incredibly difficult to predict. There may be issues with the manufacturing process because there is a long wait for materials or parts, and this one part could hold up an entire line of products. On the other hand, the delay may be caused by the delivery carrier. It’s very hard to predict.
Does Your Business Need New Technology Solutions?
At Initial.IT, we specialize in ensuring our clients have a technology infrastructure that is highly customizable and scalable. We also believe that it is important to educate and inform them on important topics, such as Section 179. When we discovered that many of our clients were either unaware of Section 179 or not sure how to take advantage of the Section 179 deduction, we wanted to educate them.
When Denver businesses invest in new equipment, it is typically to increase their productivity and to give them a competitive advantage. Section 179 is a great opportunity for Denver businesses to do both while taking advantage of the deductions provided by the IRS. Initial.IT can help your Denver business determine the right technology solutions to help your business take advantage of the Section 179 deduction before December 31. Contact us today to learn more.
Special thanks to James Forbis with Cincinnati IT services company, 4BIS for his help with this research.