New Capital Expense Rules for 2018
Don’t Miss Out on the Advantages of Section 179
Taxes may be inevitable but as always, it is vitally important to use the rule to your advantage. Here are some insights that may help your sign-making business.
The big tax reform bill that passed in late 2017 contains a host of provisions that can bring significant advantages to small businesses, especially those —like sign-makers— whose success can hinge on keeping pace with changes in technology. Until now, the big challenge has been using your financial resources in a way that lets you bring new technology into your business and also makes sense when tax time rolls around. The new tax changes can help, especially a provision known as Section 179.
Starting this year Section 179 lets you expense up to $1 million in business property purchases, twice the former limit of $500,000. Previously, spending things like business and office equipment, vehicles and the like were depreciated over several years, spreading out the tax benefit and often making it somewhat less attractive. Section 179 lets you take the tax break for the year the newly acquired property is placed in service. This means you can install a new device as late in the year as December, and as long you can document that it is in regular operation by the end of the month, you are good to go.
Small Business Friendly
One of the interesting parts of this is that section 179 has what is termed an “eligibility phase out,” designed to limit its use to small businesses. The eligibility actually extends up to $2.5 million with the caveat that if you spend more than $2.5 million on business property the $1 million deduction will be reduced on a dollar-for dollar-basis. Still, this enables many businesses to garner some significant tax deductions for buying equipment that can help them add new capabilities and services than can be key differentiators in local markets.
For example, a sign-making company can easily invest in a new photopolymer sign making system that helps them make the best ADA-compliant signs in your market. And, because the benefit is not limited to new equipment, the used delivery truck and the year old forklift you bought can be part of the deduction. So too, can alarm, heating and air conditioning systems, as well as improvements to your roof. So step back and take a broad look at your business needs and what will help make your business better. Then make the investments that make sense for your company, from daily operations to infrastructure to tax planning. Of course, be sure to discuss you plans with your tax professional to make sure you maximize your benefits under Section 179.
And There’s a Bonus!
You probably aren’t expecting a bonus to arrive on top of this, but for a limited time a First-Year Bonus Depreciation limit is also improved. A bonus depreciation similar to Section 179 lets you immediately expense capital purchases instead of depreciating them over several years. That starts this year, 2018, and lets you depreciate 100 percent of a qualified asset purchase price over the next five years. This can now be used for both new and used equipment put into service starting
in 2018. This allowance will decline starting in 2022, so the sooner you can take advantage of this the more meaningful it can be for your business. To put this in context, bonus depreciation is normally used for relatively short-lived capital investments that have a useful life of 20 years or less. The First-Year Bonus Depreciation changes that landscape so you can better make investments that can help your business grow and be more profitable.
As noted, be sure to work with you accountant or other tax professional to make sure you use this attractive new tax advantage as effectively as possible.