Tax Tips

What can you deduct under §179?

Purchasing equipment is simply part of running a business. Electing to immediately deduct the entire business purchase instead of capitalizing it and depreciating the asset over its useful life, which is usually several years, could provide substantial tax relief for business owners, especially those who are purchasing start-up equipment.

To qualify for the deduction, property must have been acquired for business use and by purchase. Tangible property that qualifies for the deduction includes:

  • business-equipmentMachinery and equipment.
  • Property contained in or attached to a building (other than structural components), such as refrigerators, gro­cery store counters, office equipment, printing presses, testing equipment and signs.
  • Gasoline storage tanks and pumps at retail service stations.
  • Livestock, including horses, cattle, hogs, sheep, goats and mink.

Generally, off-the-shelf computer software also qualifies for this deduction, as does qualified real property, including leasehold improvement property, restaurant property or retail improvement property.

Generally, you cannot claim this type of deduction if the expense is being used for:

  • Land and improvements.
  • Leased property.
  • Property used for lodging.
  • Energy property.

The total amount you can deduct under §179 for most property placed in service in tax years beginning in 2016 generally cannot be more than $500,000.

If you’d like to deduct a business equipment purchase but aren’t sure whether it qualifies for the deduction, please feel free to consult me.

IRS Raises De Minimis Safe Harbor Threshold
Life just got easier for certain small business owners

The IRS simplified the paperwork and record-keeping requirements for small businesses by raising the safe harbor threshold for deducting certain capital items from $500 to $2,500. This change affects businesses that do not maintain an applicable financial statement (i.e., audited financial statement). It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.

The new $2,500 threshold applies to any such item substantiated by an invoice. As a result, small businesses will be able to immediately deduct many expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions. The new $2,500 threshold takes effect starting with tax year 2016. In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.

If you have an applicable financial statement, the de minimis or small-dollar threshold remains $5,000.