Section 179: A quick guide for 2022

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If you want to learn more about Section 179 watch this informational video from our parters at Mazo Capital or read the post below.

Note: Deciding if a Section 179 tax deduction is right for your business can be complicated. Many factors such as your taxable income, employee wages and type of asset purchase all need to be considered. This article is an introduction to Section 179 and is only for information purposes. We always recommend getting accounting, tax, or financial advice from a professional.

Section 179 is a tax deduction that allows businesses to ‘write-off’ a large chunk of the cost of a property or a new piece of equipment. This can help stop you from ending the financial year with a tax bill that is higher than necessary.

Upgrading your existing crushing or screening machines can boost employee morale and improve your business's efficiency. But does it make financial sense? The value of equipment depreciates over time. This means that year after year, your machine will be worth less money as it gets older. The U.S. government takes depreciation into consideration and will reduce the tax on the machine accordingly each year. It is however possible to depreciate the entire cost of the equipment in the year that it is purchased through a Section 179 tax deduction.

Below is a general guide to introduce you to Section 179, its limits, and how it can be an effective cost-saving strategy for your business.

What is Section 179?

Section 179 is designed for small and medium-sized businesses, and it can be used when you have purchased a piece of property or heavy equipment such as a crusher or screener. Section 179 deductions can be applied when the asset is:

• Bought for business use.
• Used for business purposes at least 50% of the time.
• The maximum amount you can write off in 2022 is $1,080,000.
• The “total equipment purchase” limit is $2.7 million for 2022.
• It must be claimed in the same financial year as the purchase using Form 4562.
• Section 179 deductions cannot be higher than your business’ taxable income. For example, if you buy a piece of equipment for $150k but your yearly taxable income is $100k, you can only write off $100k. Exceptions can apply; we recommend speaking to a tax professional.

Section 179 is different from normal yearly deprecation as it allows you to write off a percentage of your equipment purchase price based on your tax bracket (see example below). It doesn’t matter if it was financed or paid for with cash or if the equipment was new or used. Remember that you must file for Section 179 in the same financial year that you purchase your equipment.

Section 179 example

Let’s take a look at the tax savings on a $250,000 rock crusher when you apply the 2022 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:

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.

What equipment qualifies under Section 179?

Almost any kind of property, machinery, or equipment is eligible for tax deduction under Section 179. If a purchase does not qualify for Section 179, regular depreciation rules can still apply. Check out detailed information on Section 179 from the IRS.

Working with a tax professional is always recommended.

How can I use Section 179 with Machinery Partner?

At Machinery Partner, we have a full range of crushers, screeners, excavators & 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!