During the pandemic, much of the equipment businesses purchased to conform to COVID-19 restrictions will qualify for the Section 179 tax Deduction. Leasing and financing equipment assists in preserving cash flow—and thanks to updates in the Section 179 accounting rules, it can also save money on taxes.
If the equipment you lease qualifies for the Section 179 tax deduction, you might be able to expense all or portions of the cost.
Here’s what you need to know to create your own tax break for 2021:
- The deduction limit for Section 179 is $1,050,000 up from $1,040,000 in 2020.
This means U.S. companies can deduct the full price of qualified equipment purchases, up to $1,050,000, with a “total equipment purchase” limit of $2.62 million (up from $2.59 million in 2020). This deduction is good on new and used equipment, as well as off-the-shelf software. This limit is only good for 2021, and the equipment must be financed/purchased and put into service by the end of the day, 12/31/2021.
- The 2021 Section 179 deduction threshold for total amount of equipment that can be purchased is $2,620,000.
This means that you can purchase more equipment and still have the benefit of the Section 179 deduction. This is the maximum amount that can be spent on equipment before the IRS Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true “small business tax incentive”.
- 100% bonus depreciation was reinstated for the tax year 2021.
Businesses can take advantage of 100% bonus depreciation on both new and used equipment for the entirety of 2021. Bonus Depreciation is generally taken after the IRS Section 179 Spending Cap is reached.
Let’s talk about how you can make sure you are taking full advantage of this tax benefit.