Manage Your Small Business Tax
You work hard to earn a profit of which you pay your fair share of taxes. But if you don't want to pay more than your fair share, you should plan your expenses to take advantage of available deductions.
In the midst of thousands of pages of tax law and potential deductions, the Section 179 Deduction is a relatively simple, "fits all" rule to manage your tax obligation.
Purchasing Tools & Shop Equipment
Every business has operating expenses. These expenses fall into different categories when you file your annual tax forms to the IRS.
The purchase of tools and most shop equipment can be used as a tax deduction if it meets certain criteria. For example:
• The property must last more than a year.
• The property must be used primarily for business (51% or more).
• The property must be purchased between January 1 and
December 31, 2014.
• The property must be put into service during 2014.
Depreciation vs. Section 179 Expensing
When a business purchases qualifying equipment, a depreciation method is typically used which writes off a little of the cost at a time beginning when it is placed in service.
(For example, Sam spends $4,000 on shop tools which arrive and he begins using on October 1, 2014. Using the MACRS depreciation with Mid-Quarter Convention and Straight Line Depreciation rules, Sam would have to deduct a portion of the cost each year over 7 years. Since this was placed in service for the last quarter of 2014, the depreciation would look something like: 2014 = $71; 2015 = $571; 2016 = $571; 2017 = $571; 2018 = $571; 2019 = $571; 2020 = $571; 2021 = $500.)
However, Section 179 of the IRS tax code allows businesses to deduct the full purchase of qualifying equipment and/or software purchased or financed during the tax year. Meaning, the full purchase price will be deducted from your gross income.
Leasing Your Purchase
Businesses can lease equipment and still take advantage of the Section 179 Deduction. Ultimately the buy vs. lease decision will depend on your business situation, but an important fact about leasing is this: with the Section 179 deduction, you can write off 100% (up to $25,000) of the price of your qualifying equipment but you don't have to spend
This means that with a properly structured lease, your tax deduction can actually be more than your first year of payments.
Section 179 Amounts
The Section 179 Deduction can change each year. Currently for 2014, the limit on the total amount of business property expenses that you can deduct each year under Section 179 is $25,000.
It is very important to know what the current year's limits are. (For example, in an effort to stimulate a faltering economy, this limit was as high as $500,000 in 2010 though 2013.)
There is legislation pending in the Senate to increase the limit for 2014. Be aware of potential changes, but this rate will change only if the Senate takes action.
A few other points:
• You don’t have to claim the full amount—it’s up to you to decide how
much to deduct under Section 179. Whatever amount you don’t claim
under Section 179 must be depreciated instead.
• There is also a limit on the total amount of purchases that will allow
Section 179 deductions each year. The applicable limit for 2014 is
$200,000 (unless the 2014 limits are increased)
• If your purchases are less than $200,000, you may elect to deduct
under Section 179 the first $25,000 and depreciate the remainder.
• You must reduce your Section 179 deduction by one dollar for every
dollar your annual purchases exceed $200,000. That means that if
your business spends $225,000, your Section 179 Deduction is $0
and only depreciation is used.
• You can’t use Section 179 to deduct more in one year than your net
taxable business income for the year. But, any amount you cannot
deduct in the current year, you can carry forward and deduct the next
year (or any other year in the future)!
Ask your Tax Advisor for complete information on limits, implementation and advise on how deductions can benefit your business.
For more information, visit www.irs.gov.
Benefits of Leasing with LCA
ToolTopia.com has partnered with Lease Corporation of America (LCA) to offer customer friendly financing programs for our products. Lease Corporation of America offers an easy to use leasing option that includes a simple one page lease application, credit turnaround in less than four hours and personalized service for any questions you may have about financing.
• Fixed monthly payment -
Payments do not fluctuate with
interest rates like loans.
• Easy Documentation -
Fast and simple application and
• Preserved Credit Line -
Leasing does not affect your bank
or credit lines.
• Possible tax benefits -
Expense payments using
Tax Code Section 179.
All financing offers: with approved credit.
TOOLTOPIA® is not an authorized tax advisor. You must consult
your tax advisor, visit www.irs.gov
or contact the irs hotline at 800.829.4933
to confirm qualifications for the Section 179 tax benefit.