2024 Section 179 updates: What you need to know
The world of tax deductions is complex and constantly evolving. To help businesses stay on top of the changes, we’ve updated our guide to reflect the latest updates to Section 179 for the 2024 tax year. Whether you're a seasoned business owner or new to corporate tax incentives, this blog post will clarify the Section 179 deductions, the enhancements for 2024, and how these changes can benefit your bottom line.
Introduction
Section 179 of the IRS tax code is an invitation to businesses to invest in themselves by offering a direct write-off for the purchase of qualifying equipment and software. Designed to spur economic activity and growth, it allows businesses to deduct the full purchase price from their gross income. But just like any tax provision, it experiences year-to-year adjustments that must be navigated carefully.
What is Section 179?
Originally meant to ease the financial burden on small and medium-sized businesses, Section 179 deductions are a smart way to manage large equipment and software expenses. In essence, when a company buys certain assets, it can deduct the cost from its income, leading to significant tax savings.
For 2024, the new updates mean that the cap on the total amount of equipment that can be written off is $1,220,000. The phase-out threshold, which is the maximum amount that can be spent on the equipment before the deduction starts to decrease, is now pegged at $3,050,000. Notably, this limit has been adjusted to keep up with inflation and the changing economic landscape.
Eligibility and Limitations
To qualify for the Section 179 Deduction, the equipment must be purchased or financed and placed in service between January 1, 2024, and December 31, 2024. Importantly, both new and used equipment qualify, expanding the accessibility of Section 179 to various business models and budgets.
Even as we deal with the constraints imposed by these thresholds, Section 179 maintains its allure as a persuasive financial strategy for businesses of all sizes. Still, it’s crucial for businesses to ensure that their total equipment spending remains below $4,270,000 to benefit fully from Section 179.
Bonus Depreciation vs. Section 179
Whilst similar to Section 179, Bonus Depreciation serves as a different route for accelerating investment returns on property. For 2024, Bonus Depreciation allows for a 60% deduction for eligible new and used equipment.
Yet, there are distinctions between the two. Bonus Depreciation doesn't cap the annual deduction amount, offering greater flexibility for significant investments. Conversely, Section 179 is bound by stricter purchase limits and a deduction ceiling. The best option depends on the business's size, needs, and financial health.
It's critical to remember that while Section 179 and Bonus Depreciation can offer substantial tax benefits, the decision to utilize either of these incentives should not be taken lightly. Each business's situation is unique, involving nuanced financial considerations that can significantly impact the overall benefits of these deductions. Therefore, we always recommend consulting with a qualified tax specialist or financial advisor to determine if either of these tax incentives is the right fit for your business. A professional can provide personalized advice, ensuring that your investment decisions align with your business objectives and tax planning strategy.
How to Claim Section 179
Claiming Section 179 is a clear-cut process. Businesses must simply list their qualifying purchases on Form 4562 and submit it with their tax return. It’s paramount, however, to consult with a tax professional to ensure the proper steps are followed, as tax codes can be intricate and prone to misinterpretation.
What Kind of Equipment Qualifies Under Section 179?
A heavy SUV over 6,000 lbs GVWR, primarily used for business (over 50%), becomes an eligible choice for Section 179 in 2024. Similarly, heavy machinery including crushers, shredders, excavators and conveyors may also be included under Section 179.
For instance, a small construction company purchasing heavy machinery or computer software to streamline their operations can utilize Section 179 for tax relief. Their tax deductions could include recycled heavy equipment, which now qualifies for bonus depreciation, enhancing the fiscal gains.
Section 179 example
Let’s take a look at the tax savings on a $250,000 rock crusher when you apply the 2024 Section 179 deduction. Assuming you are in a tax bracket near the national average of 21%, the example Section 179 tax calculations are as follows:
| Equipment Cost | $250,000 |
|---|---|
| Section 179 deduction applied | $250,000 |
| Tax Savings (21% tax bracket) | $52,000 |
| Cost after saving | $197,500 |
As you can see, after-tax savings can be very powerful! If the $250,000 rock crusher was financed for approximately $4,200/month, the same tax scenario above would apply. You are allowed to deduct the full purchase price of the crusher, as long as it is placed in service in that tax year.
The example above is only an example. Section 179 deductions have the power to increase cash flow for your business but it is important to note that every business and tax scenario is different and depends on a range of factors. You should always consult a tax professional who is qualified to give you financial advice before filing a Section 179.
Impact on Industries
Specific sectors, notably construction and those involving heavy machinery, stand to gain considerably from the 2024 changes. Businesses can optimize cash flow and allocate funds to other areas such as growth and development, using Section 179 strategically.
Conclusion
Section 179 commands the attention of any business with tangible asset needs. As the fiscal landscape evolves, staying informed on current tax codes is integral to strategic financial planning. The 2024 adjustments are designed to make this tax incentive even more compelling for businesses across the spectrum, especially those prepared to make a substantial investment in their growth and infrastructure.
The bottom line? Planning ahead, understanding the impact of Section 179, and consulting with tax advisors should be at the forefront of any business's financial strategy. With the potential to significantly reduce taxable income, Section 179 offers a welcome reduction of the fiscal load, providing a path for savvy business owners to reinvest in their operations and people strategically.
How can I use Section 179 with Machinery Partner?
At Machinery Partner we have a full range of crushers, shredders, excavators, conveyors & more that can qualify for a Section 179 deduction. To find out more about how Section 179 can save $$$ on your tax bill this year - get in touch today!
