by Adam Gavrun, on Oct 10, 2023 2:53:00 PM
Many people think the Section 179 tax deduction is some mysterious or complicated tax code. Those in the know take advantage of the opportunity to invest in upgrades and enjoy a nice tax deduction.
If you're debating whether to buy new equipment this year vs. next year, this article is a must-read. We explain how Section 179 works and link to a tax savings calculator.
Depreciation and Section 179
Typically, businesses use straight-line depreciation to deduct equipment purchases over many years. Section 179 allows businesses to depreciate and deduct purchases faster, aka accelerated depreciation.
How Section 179 Works (Hypothetical Example)
A company buys a forklift in 2023 for $60,000. They can either deduct that purchase slowly over five years using straight-line depreciation OR deduct 80% of the forklift's cost right away using Section 179.
Straight-line Depreciation Deduction Schedule:
- 2023 taxes: - $12,000
- 2024 taxes: - $12,000
- 2025 taxes: - $12,000
- 2026 taxes: - $12,000
- 2027 taxes - $12,000
Section 179 Deduction Schedule:
- 2023 taxes: - $48,000
- 2024 taxes: - $12,000
Consult your tax advisor and accountant to determine how a specific purchase using Section 179 may affect your taxes.
Section 179 Rules
Section 179 of the IRS tax code is an incentive created by the U.S. government to encourage small and mid-sized companies to reinvest in themselves. In 2023, businesses may deduct 80% of the purchase price of qualifying equipment acquired in 2023. Whether you pay for the equipment outright, make payments or lease, you can use Section 179 to reduce your gross income. The deduction applies to federal taxes only, not Georgia or Florida corporate taxes.
The equipment must be purchased and put into service by 11:59 p.m. on December 31, 2023. “Put into service” means the equipment must be in your possession and ready for use by end-of-day on December 31st. If you bought a forklift, it should be somewhere in your facility vs. on order with the factory. If you bought a dock leveler, it must be installed. You get the idea…
Businesses may depreciate and deduct qualified new or used equipment purchases up to $1,160,000. The entire $1.16M deduction can be claimed up to the $2.89M equipment purchase limit. Once that number is reached, the Section 179 deduction decreases dollar-for-dollar and reaches zero once $4,050,000 equipment is purchased or financed.
Put another way, this deduction only makes sense until you reach $4.05 million in yearly purchases. As mentioned above, it’s an incentive for SMBs (small and midsize businesses).
What equipment qualifies for a Section 179 deduction?
The IRS permits businesses to depreciate and deduct all tangible property used during business activities. Anything that’s a physical object used to enable income-generating activities should be deductible — even if you’re making payments.
Qualifying purchases include: office equipment, computer hardware, corporate vehicles, and industrial equipment such as new or used:
- Forklifts
- Aerial lifts
- Loading dock equipment
- Warehouse racking
- Warehouse automation hardware
- Electric utility vehicles
- Industrial cleaning equipment
How much can I save?
Taking an 80% deduction right away instead of slowly over many years can significantly reduce your operation’s tax liability in 2023. How much will you save? The exact number depends on a variety of factors.
Since we’re material handling experts and not tax experts, please consult with a tax professional to calculate potential savings and ensure compliance. But if you want a rough estimate, try this Section 179 savings calculator.
The Clock is Ticking…
The 80% depreciation option ends in 2023. Unless something changes, accelerated depreciation drops to 60% in 2024 and continues to drop every year until the incentive expires after 2026.
If you’re even thinking about taking advantage of Section 179 this year, you need to get started on those new purchases. As mentioned above, your equipment must be put into service before midnight on December 31, 2023 to qualify for the deduction.
It only takes a moment to request a quote. We’ll respond with the info you need to make an informed decision. Contact us online, by phone at (800) 226-2345 or in person at one of our ten locations throughout Georgia and Florida
GEORGIA: Albany, Macon, Midland, Valdosta
FLORIDA: Jacksonville, Ocala, Orlando, Lakeland, Tampa, Winter Haven
Further Reading:
How to Choose the Right Type of Forklift
Repair Vs. Replace Your Forklift: What Equipment Managers Need To Know
3 Reasons Moving to Electric Will Re-Energize Your Business
3 Common Misconceptions About Electric Forklifts
