Join #1 A.I. tax service for freelancers

Resources

⏳File 2023 taxes and minimize IRS late fees now!

Home › Tax Deduction › Device And Equipment

Section 179 As A Business Tax Deduction

Are you a small business owner looking to maximize your tax savings and looking for new business tax deductions? Enter tax code 179, commonly known as Section 179. This deduction encourages businesses to invest in equipment so that they can write them off come tax season. But what exactly can you write off with Section 179 in 2023? Well, the good news is that it covers a wide range of assets, from computers, machinery and office furniture to vehicles. You can write off a substantial portion of the cost of qualifying vehicles for your business, which can be a game-changer if you rely on vehicles to keep your operations rolling.

Table of contents

Key takeaways...Read more

All about the Section 179 tax code...Read more

Who can take Section 179 as a deduction?...Read more

How to take the Section 179 tax deduction in 2023?...Read more

Can I deduct tools I bought for work under Section 179?...Read more

Can you depreciate used equipment using Section 179?...Read more

How can I use Section 179 as an LLC?...Read more

Section 179 and bonus depreciation...Read more

Key takeaways

Tax code 179 allows businesses to claim certain assets as deductible from business taxes.
Section 179 is a big vehicle write-off for businesses in 2023.
Section 179 can be taken as a small business tax write-off with the bonus depreciation deduction.

All about the Section 179 tax code

Picture this: You're a small business owner with big dreams. You've got this great idea, but to make it happen, you need some shiny new equipment. There's just one problem – that equipment doesn't come cheap. That's where Section 179 steps in to make your dreams a reality. Tax code Section 179 within the US Internal Revenue Code gives business owners the opportunity to claim an immediate expense deduction for the purchase of depreciable business equipment rather than spreading the cost over an extended period through capitalization and depreciation. Suppose you’re writing off a vehicle for business. Now, you've got a choice to make. Do you want immediate tax relief, or do you prefer to spread out your tax benefits over time? That's the decision at the heart of Section 179 in 2023. Here's the deal – if you go for the immediate expense deduction, you're in for some tax savings right away. It's like getting an instant tax break, which can greatly help reduce your tax bill. On the other hand, if you decide to capitalize and depreciate the asset, you'll be taking smaller tax deductions over a more extended period.

Infographic entitled When Home Insurance Becomes Tax Deductible describing situations when homeowners insurance is deductible.

This deduction also can't be applied to intangible assets or things you don't actually own. Off-the-shelf software (Google or Microsoft solutions, HubSpot, Salesforce) is an exception to this. You can use a section 179 deduction calculator to help you with the math. Or you can reach out to one of FlyFin’s CPAs, who can provide unlimited 1099 tax support and help you navigate the deduction. Section 179 is a type of depreciation method, so you’ll need to follow some depreciation deduction rules to use it. First off, you can only write off assets that you actually own, and these assets are typically expected to be in use for more than just a year. The IRS has a handy list of assets you can depreciate, which basically means you can spread out their cost over time for tax purposes. Each type of asset has a predetermined period (called "useful life") over which you can claim this depreciation tax deduction. For example, you can depreciate a piece of office furniture's value over a span of seven years or office equipment over five years. It's like the IRS' way of recognizing that assets lose value over time, and they're giving you a tax break accordingly.

As far as business tax write-offs go, this deduction is pretty useful, especially if you’re just starting to invest in devices and equipment. If you’re looking for other business deductions, you can use a 1099 tax calculator.

Who can take Section 179 as a deduction?

So, who gets to take advantage of this tax code? Well, the good news is that the Section 179 tax code isn't just for the big players; it's tailor-made for small businesses looking to maximize their tax savings. Whether you're a sole proprietor, run a partnership, or have a large corporation, you can potentially reap the benefits. Now, in 2023, there's a new set of rules in play. The Section 179 limit for 2023 is set at $1,160,000. If your business purchases qualifying assets, like equipment or vehicles, you can deduct up to $1,160,000 of the cost from your taxable income as long as your purchases are capped at $2,890,000. That's some serious tax relief! Knowing what to write off on your taxes is essential for businesses that want to lower their taxable income. It can also affect estimated taxes and reduce the amount of self-employment taxes they have to pay. Any self-employed individual with an estimated tax liability over $1,000 has to make quarterly tax payments to the IRS. You should use Form 1040-ES to make these payments. This tax liability has to include both self-employment income and W-2 income, if any. So, using the Section 179 deduction along with other small business tax write-offs can prove useful in increasing tax savings and not pay more than you need to. This is useful for self-employed individuals who need to pay both income and self-employed taxes.

Infographic entitled What Property is Tax-Deductible listing property with tax that’s deductible from real estate taxes.

How to take the Section 179 tax deduction in 2023?

Say you're a small business owner who runs a successful graphic design studio. Your business has been growing steadily, and in 2023, you decided it was time to upgrade your equipment to enhance your design capabilities. You needed the latest design software and more powerful computers to handle complex projects efficiently. So, early in the year, you invested $30,000 in new computers, software licenses and certain design-related equipment. Now, here's where Section 179 comes into play. First, you checked that your assets were eligible for the deduction. Your equipment was owned by you, used solely for business and brand new. So, instead of depreciating the $30,000 over several years, you deducted the entire $30,000 cost from your business's taxable income from your 2023 taxes. But what if you use an asset for business and personal reasons? Does it still qualify as a business tax deduction under Section 179? Yes, it does! You can still claim the deduction as long as you use your assets for more than 50% of the time for your business. If you use an asset both privately and for your business, you can usually only deduct the portion of its cost relating to your business use. You’ll need to find the asset’s business use percentage to do this. Say you’re a freelance writer who uses your laptop for work and personal purposes. You want to write it off, but need to find the business use percentage of your laptop if you want to use the Section 179 deduction. Throughout the year, you’ve kept a detailed log of your laptop usage. You tracked the time spent writing articles, communicating with clients, conducting research and managing multiple business projects. At the end of the year, you review your records and find that 70% of your laptop usage is directly related to your freelance writing business. With this information in hand, you calculate your Section 179 deduction. Suppose you purchased the laptop for $1,500. Using the 70% business use percentage, you can deduct $1,050 ($1,500 x 70%) as a legitimate business expense from your taxes.

Can I deduct tools I bought for work under Section 179?

The IRS lets self-employed individuals deduct tools they've purchased for work using tax code Section 179. Like all other small business tax write-offs, claiming work equipment on taxes means keeping clear records of your tool usage and purchase receipts. Whether it's a power drill, computer software or any other essential work tool, Section 179 can help reduce your taxable income and put money back in your pocket come tax time. Just make sure that you check if your tools are eligible for the deduction before you write them off.

Can you depreciate used equipment using Section 179?

Both new and used equipment can potentially qualify for the Section 179 deduction as long as the used equipment is considered "new to you." Making this distinction is essential for small business owners looking to optimize their tax savings while making cost-effective choices for their operations. "New to you" means that even though the equipment may have had previous owners or users, it's your first time incorporating it into your business. This rule allows small businesses to take advantage of Section 179 even when acquiring used assets that still hold significant value.

How can I use Section 179 as an LLC?

If you're running an LLC, you can also benefit from Section 179 too as any self-employed individual can use this deduction. First, you have to check if your LLC meets the criteria for Section 179 eligibility. You’re eligible as long as your LLC is actively engaged in business activities and you're acquiring assets primarily for business purposes. Next, figure out which assets you plan to purchase and make sure they fall within the IRS's guidelines for eligibility. Section 179 covers a wide range of tangible assets, so you have many choices. You also need to maintain comprehensive records of your asset purchases and their usage for business purposes. This can be in the form of receipts, invoices, purchase orders or bills. This documentation is very important when preparing to file your returns and in case of an IRS audit. Apart from taking the IRS Section 179 deduction in 2023, LLC members can write off a number of expenses as deductible from their business taxes. FlyFin’s A.I. easily finds tax-deductible business expenses, while in-built tax calculators can total your estimated tax liability to help you avoid penalties.

Section 179 and bonus depreciation

There’s some good news for self-employed individuals who have assets that are business tax deductions. The IRS allows you to use the bonus depreciation method and Section 179 together to maximize your tax write-off. You can deduct a percentage of your asset’s cost with bonus depreciation. And like Section 179, it covers both new and used assets, as long as they're new to you. The percentage you can deduct under the bonus depreciation deduction is currently being phased out. In 2023, the percentage is set at 80%. It goes down 20% every year, finally phasing out in 2027. This acts as an incentive for business owners to buy assets in the near future. The IRS requires business owners to apply Section 179 first and then use the bonus depreciation deduction. Form 4562 is the main form you’ll need to do this. Remember that Section 179 and bonus depreciation can be used separately, too. Certain tax-deductible business expenses may be only eligible for the bonus depreciation deduction, or vice versa. Just like everything tax-related, make sure to consult with a CPA before you sit down to file.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.