Tax season is here already. As you might have imagined, changes are being rolled out, and now is the time determine which of those changes applies to you and your business. There’s good news. If your business uses software or computers, you may be eligible to write them off and save big.
Have you heard of the PATH Act? Passed by the House and Senate, this bill went into law on December 18 of last year. The most notable aspect of PATH is the expansion of Section 179 deduction limit to $500,000.
Section 179 Deductions and Applications
So, what does this deduction apply to? It works for new and used equipment and off-the-shelf software. It’s important to note that the limit applies to this calendar year only. You’ll need to have purchased and put into service the equipment by the end of December 31, 2016.
There is also a spending cap of $2,000,000 to be aware of. That’s maximum you can spend on equipment before the deduction is made available to your business and is reduced dollar for dollar.
According to official Section 179 website, $10,000 increments will be used to index the cap for inflation in the future.
Once you’ve reached the spending cap, you may be eligible for the 50% Bonus Depreciation on new equipment. This depreciation is applicable to equipment purchased and used in 2015, 2016, 2017. The bonus depreciation will go down to 40% in 2018 and 30% in 2019.
Why It Matters to Small and Medium-Sized Businesses
If you purchase, lease or finance less than $2,000,000 in used and/or new business equipment in 2016, you should be eligible for Section 179 and its latest updates.
This change is beneficial to businesses as they are able to write off the entire cost of equipment in the year it’s purchased. That means business owners can add new equipment in a single tax year instead of having to phase out the purchase over a few years.
The spending cap of $2,000,000 makes it a beneficial update for small and medium-sized businesses in particular. The potential to save money and maximize your ROI on business- related purchases including accounting software is huge.
What to Keep in Mind
Of course, the first question for many business owners is, “What qualifies for the Section 179 deduction?”
Here’s a handy list of material goods that qualify per the official Section 179 website. Keep in mind these items must be purchased and put into service between January 1 and December 31 of the tax year.
- Computer software including accounting software
- Equipment and machines for business use
- Office furniture
- Some partial business use equipment
- Business vehicles under 6,000 pounds in gross vehicle weight
- Some personal property used in your business
You can find the complete list of qualifying purchases here.
A Word on Software
The off-the-shelf software you purchase for your business will most likely meet eligibility requirements. This software does need to be expected to last more than a year and readily available for purchase by the general public.
Software that has been greatly modified or is subject to a non-exclusive license may not be eligible.
At SYGNVS Integrated Solutions, we’ll work alongside you to find the right software to expand your business and make the most of the latest Section 179 update. Reach out to our team to set up a consultation.