4 Reasons to Maximize Section 179 Deduction in 2024

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A vintage-style advertising poster promoting the benefits of Section 179 for businesses.

As a business owner, you’re always looking for ways to improve your bottom line. At XOA TAX, we often advise our clients to explore the significant tax advantages offered by Section 179 of the IRS tax code. This deduction allows businesses to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year, potentially leading to major savings. Let’s dive into why maximizing the Section 179 deduction in 2024 could be a game-changer for your business.

Key Takeaways:

  • Section 179 allows you to write off the entire cost of qualifying assets in the year they’re placed in service.
  • The deduction limit for 2024 is $1,220,000.
  • The deduction begins to phase out dollar-for-dollar once you spend $3,050,000 on equipment.
  • Bonus depreciation can be combined with Section 179 for even greater savings.

#1: Deduct Up to $1,220,000 in 2024

For the 2024 tax year, businesses can deduct up to $1,220,000 for qualifying equipment. This substantial deduction limit can significantly reduce your taxable income and free up cash flow for other business needs.

#2: New and Used Equipment Qualifies

Section 179 applies to both new and used equipment, as long as it’s used primarily for business purposes (more than 50% of the time). This provides flexibility for businesses of all sizes to take advantage of this tax incentive.

Qualifying Property Includes:

  • Office furniture (desks, chairs, etc.)
  • Office equipment (printers, copiers, etc.)
  • Computers and software
  • Certain vehicles (with limitations)
  • Business appliances (refrigerators, air conditioners, etc.)
  • Specific improvements to non-residential buildings

Important Note on Vehicles:

While certain vehicles do qualify for Section 179, there are limitations on the deduction amount, especially for passenger vehicles. For 2024, the first-year deduction for passenger vehicles is limited to $12,200. However, certain qualified vehicles over 6,000 lbs have higher limits. The IRS provides detailed guidelines on vehicle limitations in Publication 946. It’s always best to consult a tax professional for guidance on your specific situation.

#3: Accelerate Your Deductions

Section 179 allows you to take the full deduction in the first year the equipment is placed in service. This “accelerated depreciation” is a major advantage compared to traditional depreciation methods, where deductions are spread out over several years. By accelerating your deductions with Section 179, you can:

  • Reduce your current tax burden
  • Improve cash flow
  • Reinvest savings back into your business

#4: Combine with Bonus Depreciation

To amplify your tax savings, combine Section 179 with bonus depreciation. For 2024, bonus depreciation allows you to deduct 60% of the cost of qualifying assets. You can claim bonus depreciation on the amount exceeding the Section 179 limit, up to the phase-out threshold.

Example:

Let’s say you purchase $2,000,000 in qualifying equipment.

  • Section 179: You can deduct the first $1,220,000.
  • Bonus Depreciation: You can then take a 60% bonus depreciation on the remaining $780,000 ($2,000,000 – $1,220,000).

Important Considerations:

  • Phase-out Threshold: The Section 179 deduction starts to phase out dollar-for-dollar once your total equipment purchases exceed $3,050,000. The deduction is completely eliminated at $4,270,000.
  • Mid-Year Purchases: If you purchase equipment mid-year, the Section 179 deduction is prorated based on the number of months the asset is in service during the tax year.
  • Business Use Requirement: To claim the full Section 179 deduction, the equipment must be used for business purposes more than 50% of the time. If the business use falls below 50%, a portion of the deduction may need to be recaptured as taxable income.
  • State Tax Treatment: While Section 179 is a federal tax deduction, it’s important to note that some states don’t fully conform to the federal rules. Consult your tax advisor or state tax agency for specific guidance.
  • Election Process: To claim the Section 179 deduction, you’ll need to make an election on IRS Form 4562, Depreciation and Amortization. This form is filed with your annual tax return.
  • Record-Keeping: Maintain detailed records of your equipment purchases, including invoices, purchase agreements, and documentation supporting the business use percentage.

Tax Savings Examples

Here’s how Section 179 can translate into real tax savings at different tax brackets:

Tax Bracket Equipment Cost Section 179 Deduction Tax Savings
21% $50,000 $50,000 $10,500
24% $100,000 $100,000 $24,000
32% $250,000 $250,000 $80,000

Note: These are simplified examples for illustrative purposes. Actual tax savings may vary depending on your specific tax situation.

FAQ Section

Q: What types of businesses can claim the Section 179 deduction?

A: Most businesses that purchase, finance, and use qualifying equipment for business purposes can claim the Section 179 deduction.

Q: Is there a limit on the number of assets I can claim?

A: No, there’s no limit on the number of qualifying assets you can claim, as long as the total deduction doesn’t exceed the limit and you meet all other requirements.

Q: Can I carry forward the Section 179 deduction if I don’t have enough taxable income?

A:Yes, If you don’t have enough taxable income to use the full Section 179 deduction in the current year, you can carry forward the remaining amount to future tax years. This is a valuable feature of Section 179 because it allows businesses to take full advantage of the deduction even if they have a low-income year.

Q: Where can I find more detailed information about Section 179?

A: The IRS website (IRS.gov) provides comprehensive details about Section 179, including qualification requirements and limitations. You can also find relevant information in IRS Publication 946, How to Depreciate Property.

Take Action Today!

Don’t miss out on the valuable tax savings offered by Section 179. Plan your equipment purchases strategically and consult with a tax advisor to optimize your deductions. By taking advantage of this incentive, you can invest in your business’s growth while minimizing your tax liability.

Contact XOA TAX for Personalized Guidance:

We’re here to help you navigate the complexities of Section 179 and develop a tax strategy that aligns with your business goals.

Website: https://www.xoatax.com/

Phone: +1 (714) 594-6986

Email: [email protected]

Contact Page: https://www.xoatax.com/contact-us/

Disclaimer: This post is for informational purposes only and does not provide legal, tax, or financial advice. Laws, regulations, and tax rates can change often, and vary significantly by state and locality. This communication is not intended to be a solicitation and XOA TAX does not provide legal advice. Past results do not guarantee future outcomes. Please consult a professional advisor for advice specific to your situation.

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