Why Use Section 179

Why Use Section 179?

Taking advantage of the Section 179 deduction can have a significant impact on taxable income, particularly when financing is used to acquire the equipment. Just a few of the benefits include:

Many businesses prefer to lease equipment and use the Section 179 deduction because this can have a significant positive impact on both cash flow and profits.
Acquire and write off $250,000 worth of equipment, without actually spending the full $250,000 this year
In some cases the amount you save in taxes will be more than the total of you first year’s payments

As an example, a business that purchases $75,000 in equipment this year can reduce the amount of taxable income by that same amount and thus the tax paid. This leaves the business owner with more capital to invest back into the business. See the specific example below:

Tax paid using normal depreciation on a $50,000 equipment purchase

Taxable Income	$200,000
Deduction with 20% depreciation rate	$10,000
Taxable Income after depreciation	$190,000
Taxes owed (assuming 35% tax bracket)	$66,500

Tax paid using Section 179 on a $50,000 equipment purchase

Taxable Income	$200,000
Deduction using full Section 179	$50,000
Taxable Income after depreciation	$150,000
Taxes owed (assuming 35% tax bracket)	$52,500

Using the example above this business would have an additional $14,000 in capital to use toward growing the business. To calculate your savings use our free Section 179 Loan Calculator.

Other Incentives for Small Businesses:

Bonus Depreciation: Under this new law you are allowed to extend the 50% first year bonus depreciation under the 2008 Economic Stimulus Act through December 31 st, 2009. This 50% bonus depreciation is taken above the regular depreciation reported for the year the property is placed in service.

Depreciation Amount: A an extra 1-year boost in the amount that can be deducted on capital expenditures for equipment that you would normally depreciate over time. And this amount has been increased to $250,000 for the qualified property.

Investment Cap Phase Out Limit: An increase in investment limitation to $800,000.

More benefits on Vehicle Depreciation: The regular dollar cap for new vehicles placed in service in 2009 is raised by $8,000, effective January 1, 2009. This increase mirrors the temporary 2008 cap increase. For 2008, the regular first-year depreciation dollar cap of $2,960 for autos was raised to $10,960 if bonus depreciation is elected ($11,160 for light trucks and vans).

NOL ( Net Operating Losses) Carry Back : According to the new laws small businesses with deductions exceeding their income in 2008 can use a new net operating loss tax provision to get a refund of taxes paid in prior years. The new provision, enacted as part of the American Recovery and Reinvestment Act of 2009, enables small businesses with a net operating loss (NOL) in 2008 to elect to offset this loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years. This can be done with the help of two key Forms - 1045 and 1139 .

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