Section 179 Deductions
Maximize Small Business Tax Deductions with IRS Tax 179 Section
Section 179 of the Internal Revenue Code allows small business owners to save money on their taxes by increasing their business tax deductions.
When April 15th draws near, many business owners begin to look for ways to deduct business income for tax purposes. Particularly, small business owners that do their own taxes may be scrambling to find a way to reduce their looming tax bill. One way the IRS allows business owners to reduce their tax bill is through a Section 179 deduction. IRS section 179 can increase business tax deductions.
What is Section 179?
Section 179 refers to a part of the Internal Revenue Code which allows businesses to deduct items that would normally be depreciated over several years to be treated as expenses. This means that the business can deduct the full cost of the item that year, rather than only a small portion of it with the rest being depreciated over the following years. The section 179 deduction is intended for small businesses so many of the rules regarding this deduction revolve around keeping it useful for small businesses only.
How do Section 179 Deductions Work?
Only certain items are eligible for section 179 deductions. Most equipment, vehicles, computers, and furniture are eligible for a section 179 deduction. Buildings, property, and intangibles are not eligible for a section 179 deduction. Business owners should also be aware that while the section 179 deduction gives a larger deduction for the year it is used, that depreciation cannot be used in the following years.
According to the IRS, the maximum amount that any small business could deduct using a section 179 deduction was $108,000 in 2006 and all equipment must have been put into service the same year the business wants to use a section 179 deduction for it. The IRS also restricts the total dollar amount of equipment the company can have put into service for the year the deduction is taken ($430,000 for 2006) which reinforces the idea that this is a deduction intended for small businesses.
The IRS also restricts amounts that can be deducted for certain things as well as the types of certain items that can be deducted using section 179. For example, to use this deduction for a vehicle, that vehicle must be over 6,000 pounds. Even then, that deduction is limited to $25,000. To receive a higher deduction for a work vehicle, it must exceed 14,000 pounds and meet other requirements. If these requirements are met the vehicle is still limited to a maximum section 179 deduction of $102,000 in 2006.
Even if a small business is not able to deduct all of their depreciable goods using a section 179 deduction, they will still be able to depreciate those goods in the normal fashion. However, the section 179 gives a great alternative for small business owners seeking to maximize their tax deductions.
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Protect Income with 1031 Exchange: Minimize Capital Gains Taxes by Planning for a Like-Kind Exchange
Sources:
The IRS website: Depreciation and Section 179 Deduction
