Well, it’s that time of the year again where I remind everyone to make sure they have taken full advantage of Section 179 tax savings for the year. The reason I keep harping about this is that many businesses put off equipment purchases until later in the year because they want to see what kind of year they are going to have. In many cases, especially in the fenestration industry, the success or failure of the fall selling season will tell the tale of whether or not the year is going to be a financial success.

The 90-day period from mid-August to mid-November is perhaps the peak of our season. It is like the “Christmas selling season” of the fenestration world. So for this 90-day period we are at our busiest, cranking out doors and windows as fast as we can in order to meet the peak demands of the year. Then, in December we catch our breaths and contemplate how successful our year has been and what sort of equipment upgrades and software we may need for the coming year. Sure, we also pondered these same factors earlier in the year, but perhaps the stress of the peak production period that we just went through has revealed a few extra machinery or software needs that we had not thought about or realized until the heat of the battle taught us otherwise.

So,  if there is anything else you need in the way of equipment or software, order it now and get it shipped and installed before the clock strikes midnight on New Year’s Eve. That’s because in order to qualify as a Section 179 deduction for 2016, the machinery or software must be purchased (or leased) and placed into service by December 31, 2016.

There is a $500,000 limit on the total amount you can deduct in 2016. This is a big improvement over previous years. When it was first enacted, the Section 179 annual limit was set at a modest limit of $10,000. However, over the years, Congress kept raising the limit in an effort to stimulate growth of small businesses during tough economic times.

The problem, however, was that we usually did not know what the new limit would end up being until late in the year when Congress finally got around to passing new legislation. By then, it was often too late to get the equipment delivered and installed. This was frustrating for business owners because it was like saying, “here is a great tax deduction that you could have used, but now you have only a month to get it done,” and with lead times on new equipment in the fenestration industry sometimes running four to six months, it was often impossible to take advantage of the updated limit. Finally, in 2015, Congress responded to complaints and made the annual limit permanent at $500,000.

Because Section 179 is intended to primarily help small businesses, there is also a limit on the total amount of Section 179-eligible property that each business may purchase each year. Beyond this limit, a phase out in the deduction begins. Using these rules, the amount a business can deduct each year under Section 179 is reduced dollar for dollar by the amount that the investment purchases exceed the annual investment limit. This annual investment limit was also permanently set to $2 million in 2015. One other nice touch that started in 2016 is that the $500,000 annual limit and $2 million annual investment limit are now both indexed each year to the rate of inflation.

So, there are only a couple of weeks left in the year to take advantage of the tax advantages associated with Section 179. If you cannot get new equipment installed within the next few weeks, it might make sense to consider buying used equipment that is in good operating order. The fact that it is immediately available and also gets you the Section 179 deduction this year makes buying used equipment especially appealing this time of the year.

Apex Capital has a great Section 179 tax savings calculator that you can use to determine your net cost of eligible equipment or software after the Section 179 tax savings are realized. For example, I recently had a customer order a Sparklike Argon Gas Tester for $10,250, and upon using this tax savings calculator, I was able to show him that his net cost after Section 179 tax savings is only $6,662.50.

For more detailed information about the Section 179 deduction, visit Section 179.org.

1 Comment

  1. Jim – great reminders for end of the year tax benefits

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