One very useful and common tax deduction that benefits business owners all over the country involves purchasing equipment and machinery in your business. There is a section of the tax code, Section 179, which allows business taxpayers to deduct the cost of certain property as an expense when the property is first placed in service. There is an additional code section currently in place, Section 168(k), which allows additional first-year deduction of property. (Commonly referred to as “Bonus Depreciation.”)

What does this mean for you? Rather than taking several years to get the deduction on your taxes, you can fully deduct it this current year. And this applies to financed equipment as well – not just equipment that is owned outright.

For example, if you had to buy a piece of equipment for your HVAC or plumbing business that is over a certain dollar amount (typically $2500 for tax purposes), you would need to spread out this deduction over a number of years. You would get a partial deduction over each year, until it has been fully “depreciated.” (You may have heard this term “depreciated” before. To keep it simple, think of it as spreading out an expense over a number of years rather than fully deducting it at one time.)

In some cases, the business owner may prefer to spread that deduction over several years – but oftentimes, business owners like to receive the full deduction in the current year, to get that immediate benefit. One should consult with their accountant or tax professional to determine which makes the most sense for them.

There are some important points to consider:

• There is a limit as to how much equipment you can deduct each year. While most businesses we work with fall well under this amount, it’s important to keep in mind. For 2023, the maximum expense deduction is $1,160,00 for Section 179.

• An additional first year depreciation deduction is allowed as “bonus depreciation,” per the enactment of the “Tax Cuts and Jobs Act.” (Currently 80% of

• the property)

• There are special rules for vehicles – this can be a bit intricate, so consult your tax advisor before calling up the dealership for your new ride!

As with all things tax related, there are specific requirements to be met and rules to follow. So make sure to consult your tax professional! Here at Lucrative Bookkeeping, we have licensed tax professionals to help you with navigating these important tax strategies. If you’d like, give us a call or schedule an appointment for a free consultation.

If you’re planning on purchasing equipment or a new vehicle, ask your accountant or tax professional whether you should consider moving this forward to this month – you could save thousands of dollars on your tax bill this year.

Please note that this is just general information and not tax advice. If you would like tax advice – schedule a consultation with us today!

Do you have any questions, comments or feedback? Email us at [email protected].