Investing in technology always provides dividends for a business, but some companies choose to hold off too long on new purchases. The reason is simple: technology is expensive. The federal government, though, has a valuable tax deduction that small businesses can use to purchase updated hardware and software. So, what is the Section 179 deduction and how does it work?
Using a Section 179 Deduction
The Section 179 deduction allows businesses to deduct the full amount of certain business purchases from their annual taxes, including technology hardware and software. The government created this incentive to encourage businesses to invest in their own operations in an effort to spur growth.
When to Use a Section 179 Deduction
As with most taxes, the deduction can be used each calendar year. As we near the end of this calendar year, it could be an excellent time to make these types of purchases. Not only will you get to use the new technology, but you will be able to recoup your deduction in just a few months. If you wait until January to make these purchases, it will take another 12 months before you would receive the financial benefit.
Be Careful When Using this Deduction
The Section 179 deduction was once referred to as the “SUV Tax Loophole” as business owners would write off expensive company vehicles under this rule. However, this deduction has been consolidated in recent years, so double-check that all purchases meet the approved parameters. Also be sure not to overspend. The rule allows for no more than $1.04 million to be written off for 2020 and limits the total amount of purchases to $2.59 million. This may not be an issue for small business, but something medium and large businesses will want to pay attention to.
The Bottom Line
Business must always walk a fine line with technology. They do not want the hardware and software they use to become obsolete, but at the same time they do not want to constantly pour capital into new technologies that don’t provide a significant benefit. This deduction takes away some of that risk. Businesses can use it to make gradual investments in technology each year while getting tax value in exchange.
Let Teltek Guide Your IT
Teltek is a leader in information technology services. We offer a proprietary approach to meeting any business’s needs and want to help your company find the right IT system that works best for your needs. If you are ready to learn more about Teltek, contact us today for a free consultation at 1-866-9-TELTEK or 410-552-6580.