Understand Section 179 Deductions and Save Money
When it comes to paying taxes, finding good news can be rare. However, for businesses interested in buying, financing or leasing new signage in 2016, there may be tax deductions available. The "Protecting Americans from Tax Hikes Act of 2015" (PATH) was signed into law on December 18, 2015 giving deductions to businesses that purchase qualifying equipment during 2016. In order to take advantage of the tax breaks offered as a part of PATH, understanding its Section 179 is not as difficult as you might think. Its purpose is to motivate American companies to invest in equipment that grows their businesses, improves their bottom lines, and helps to stimulate the economy as a result.
To qualify for the 2016 Section 179 Deduction, new signage must be purchased or financed and placed into service between January 1, 2016 and December 31, 2016. For basic guidelines on what purchases are covered under the Section 179 tax code, visit the IRS’ website on Section 179 qualifying purchases.
Prior to the introduction of Section 179 benefits, businesses could write off depreciation over time on new equipment or qualifying purchases, including LED signage, as part of their taxes. However, now Section 179 allows businesses to write off the entire amount (up to the $500,000 maximum) for the tax year in which they make the purchase. For equipment purchases over $2,000,000, the depreciation deduction is reduced – dollar for dollar – until it is completely eliminated at $2.5 million, making Section 179 a deduction specifically for small and medium-sized businesses.
The additional good news is that with its passage in late 2015, PATH made the Section 179 annual deduction limit of $500,000 permanent. Prior to 2016, approval of this deduction was often passed with only days left before the end of the tax year. For businesses that had already purchased and installed new equipment this was helpful, but it didn’t allow companies to plan ahead for those larger purchases. With permanency, Section 179 can become a planning tool for small to medium size companies who need to invest in new signage in order to drive more business.
Section 179 also allows for a Bonus Depreciation that, though not permanent, may offer businesses an additional deduction through 2019. Businesses may be able to depreciate 50 percent of the cost of new equipment acquired and put into service during 2015, 2016 and 2017. After that, the bonus depreciation will phase down to 40 percent in 2018 and 30 percent in 2019 before disappearing.
Section179.org has a useful Section 179 Deduction Calculator that illustrates possible deduction amounts. When using this calculator, also note the savings against your tax obligation. If you lease or finance signage as qualified equipment, your tax savings may exceed the first year’s payments on your new sign. This is perfectly legal and gives tangible benefits to grow small and medium sized businesses.
For more information on how Section 179 deductions affect your business taxes, consult your tax professional. For information on purchasing LED signage, contact your Watchfire Representative.