Your Tax Dollars at Work
Let me just take a wild guess. Chances are you probably aren’t thinking too much about your 2016 taxes at the moment. But you should be, even though taking advantage of the ins and outs of the tax code requires a shallow dive into the details. This is especially important right now, with the trade show season underway and what are likely to be some attractive fourth quarter deals on new equipment.
There’s a feature of the 2008 Stimulus Act called Section 179 intended to encourage small businesses to invest in the equipment they need to grow. It allows taxpayers to deduct the cost of certain types of property on their income taxes as an expense, rather than requiring the cost to be capitalized and depreciated. According to Connext, an equipment financing specialist based in Indianapolis, Congress raised this deduction to $500,000, but on January 1, 2015 it was reduced to $25,000. On top of that, a built-in depreciation bonus that allowed a company to deduct 50% of new equipment cost using the Section 179 deduction expired on December 31, 2014. So it looked like game over.
But it isn’t!
Section 179 will be permanent at the $500,000 level. And, tucked into a last-minute move in Congress on December 22, 2015, its benefits and incentives have been extended and enhanced, encouraging and enabling companies of all sizes to grow by purchasing, leasing or financing efficient new equipment. Best of all, and what you should really be paying attention to, is that both of these tax incentives are retroactive to January 1, 2015. Let me say that again: Both tax incentives are retroactive to January 1, 2015 meaning they cover all of 2015 and 2016. So, it may be time to cut a purchase order. (For details, be sure to read the Connext white paper) and set aside some quality time with your accountant and tax advisor.
The Wish List
To fuel your wish list, some of what qualifies under Section 179 can include:
- Property attached to your building that is not a structural component of the building (i.e., a printing press, etc.)
- Business vehicles weighing in excess of 6,000 pounds
- Office Furniture
- Office Equipment
So while you can’t expense a new Jaguar F-Type or Porsche GT3 R since they weigh less than 6,000 pounds, you can buy photopolymer equipment and bring processing in-house.
And, once the new investment is on site, bonus depreciation enables companies to deduct a substantial amount of a new asset, a factor that will be in effect with a gradual phase out through the end of 2019: 50% in 2015 through 2017, 40% in 2018, and 30% in 2019. To see how the deductions could apply to your business, download Connext’s Tax Incentive Calculator (Excel spreadsheet) and plug in some numbers. Then you can go to the Fall shows better prepared to cut a deal because right now, going into Q4, is an advantageous time for snapping up some new technology that can help drive your business forward.
Ms. Reed notes that in an election year that’s still embedded in an uncertain economy, business owners can be reluctant to pull the trigger. But when an equipment or software investment comes with both a significant deduction and the opportunity to differentiate oneself from a competitor, it makes good sense to make a move. If you don’t, your competitor still might, so a technology acquisition can be highly beneficial.
One big caveat—and perhaps a way to make sure your company gets near the top of a vendor’s list of priority installations—is the deadline of December 31, 2016. That’s when the new equipment or software must be up and running for you to take advantage of the deduction. So you can’t just place an order and write a check the week after Christmas, expecting the new gear to arrive in Q1 of 2017. It has to be onsite and in operation in this calendar year.
There are of course, an assortment of rules and limitations you have to pay attention to, many of which are outlined in the white paper by Linda Reed of Connext. Still, the opportunity and potential advantages are clear.
What are you waiting for?
So pick up the phone and reach out to some of those sales reps who keep calling you. Get their best prices on some new equipment and software. Plug the numbers into the calculator from Connext and see the impact on your business. Then talk with your accountant and tax advisor so you can take the best advantage of Section 179.
“As a business owner your responsibility is making sure your business remains viable and competitive,” notes Ms. Reed. It makes sense to take advantage of opportunities like those associated with Section 179 to effectively put money into helping your business to expand or becoming more competitive.”