aka How to Make Your EOY Spending Pay for Itself
DISCLAIMER: Infinity, Inc. is a Managed Services Provider — we are NOT CPAs, and we don’t play them on TV.
Before making any tax planning decisions, consult with your trusted financial advisor.
That said, your business can save up to 1 million dollars this year.
By taking advantage of the IRS’s temporary 100% expensing in Section 179. Essentially, you purchase qualifying equipment before the end of the year and receive a full deduction.
From the IRS Tax Time Guide March 8, 2019:
“Temporary 100-percent expensing (bonus depreciation)
Businesses can write off most depreciable business assets in the year they placed them in service. The 100-percent depreciation deduction (bonus depreciation) generally applies to depreciable business assets and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify. The deduction is generally allowable for qualifying property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. For more information, see Publication 946, How to Depreciate Property.”
Related IRS guidance explains:
“Section 179 allows taxpayers to deduct the cost of certain property as an expense when the property is placed in service. For tax years beginning after 2017, the TCJA increased the maximum Section 179 expense deduction from $500,000 to $1 million. The phase-out limit increased from $2 million to $2.5 million. These amounts are indexed for inflation for tax years beginning after 2018.
The Section 179 deduction applies to tangible personal property such as machinery and equipment purchased for use in a trade or business, and if the taxpayer elects, qualified real property. The TCJA amended the definition of qualified real property to mean qualified improvement property and some improvements to nonresidential real property, such as roofs; heating, ventilation and air-conditioning property; fire protection and alarm systems; and security systems. Revenue Procedure 2019-08 explains how taxpayers can elect to treat qualified real property as Section 179 property.”
What Does all this Tax Talk Mean?
Section 179 of the IRS tax code allows businesses to deduct the FULL PURCHASE PRICE of qualifying equipment and/or software purchased or financed during the tax year.
That means if you buy (or lease) a piece of qualifying equipment, you can deduct the full purchase price from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves.
What are some End-of-Year Spending Examples?
Windows 11 is out now and will not be supported by some older equipment. For example, older hardware often doesn’t have a TPM chip, which stands for Trusted Platform Module and provides security features. Apple typically calls this a T2, and PC Mag describes it like this:
“The TPM is a tiny chip on your computer’s motherboard, sometimes separate from the main CPU and memory. The chip is akin to the keypad you use to disable your home security alarm every time you walk in the door, or the authenticator app you use on your phone to log in to your bank account. In this scenario, turning on your computer is analogous to opening the front door of your home or entering your username and password into the login page. If you don’t key in a code within a short period of time, alarms will sound or you won’t be able to access your money.”
The TPM does much more than just secure the boot up process for your computer and is likely to be included and fully supported on machines from 2016 on. But if you have older computers, they may not be compatible with Windows 11. And trying to install a TPM after-the-fact is less than straightforward, even according to Microsoft.
As the economy comes back, businesses need to be ready for software updates and capacity updates. Ideally, you and your vCIO have discussed the health of your server and planned out expected updates and replacements over a 3-5-10 year span. Now is a good time to review that plan and make sure you are on target.
While hosted phones themselves may not qualify, the infrastructure they need to run on does. Consider updating to something more reliable, possibly faster, and more secure, depending on what you have now.
Have your employees been asking for new software or monitors that never seem to make it into the budget?
Additional monitors for staff almost always result in productivity increases. A long-term, multi-survey study by Jon Peddie Research found user productivity increase 42% by going from one monitor to 2. And a University of Utah study looked at the size of monitors and their effectiveness. Swapping out 18- or 20-inch monitors to 24-inch monitors could save employees up to 2.5 hours per day.* Multiply that by how many employees you have, and you’re looking at a big return for one-time, tax deductible costs.
* That study also showed a dip in productivity with monitors over 24 inches, so getting everyone 36-inch monitors will not make that increase in productivity go up even further.
Most off-the-shelf software is also covered by this deduction, so if there are new programs or tools your team wants to try out, now might be the risk-free time to try them.
Bottom Line: If you’ve been thinking about purchasing hardware or software for your business, it would be wise to do so before the end of the year.
What are the Tax Deduction Terms and Deadlines?
This deduction is good on new and used equipment, as well as off-the-shelf software, but the equipment must be financed/purchased and put into service by the end of the day December 31st.
And as quoted above, Section 179 does come with a few limits – there are caps to the total amount written off (currently $1.000,000) and limits to the total amount of the equipment purchased (currently $2,500,000).
If you’re planning to add some equipment for your business, now might be the perfect time.
Find more IRS information here, and, again, be certain to speak with your financial advisor before making any purchases. Then call us at (912) 629-2426 so we can get the process started quickly. Inventory is still severely limited worldwide, and supply chains are moving slowly. We’ll do everything we can to help.