As the end of 2018 approaches, don’t forget to take advantage of the Tax Cuts & Jobs Act! This law, which went into effect Dec. 22, 2017, enacted the most significant tax code overhaul in more than 30 years.
It offers incentives to businesses for equipment purchases — such as machine tool accessories! — with a goal of helping businesses invest in themselves and, in doing so, bolster the economy in the long run.
The Section 179 Deduction offers companies a $1,000,000 write-off on the purchase of new and used equipment. This tax deduction was made indefinite. Beginning in 2019, the deduction will be indexed every year for inflation.
The 100% Bonus Depreciation incentive remains in effect as is until 2022.
Here is a breakdown of how these tax incentives work out for different types of companies:
Sole Proprietorships, Partnerships and S-Corporations
For 32% flow-through type companies, here is how these tax benefits will work:
- Section 179: This deduction will allow your company to deduct from its taxable income the amount spent on any new or used equipment. The limit on the deduction is $1,000,000 on up to $2,500,000 of equipment purchases. From $2,500,000 to $3,500,000, the deduction is phased out dollar for dollar. Anything above $3,500,000 does not get the deduction.
- Bonus Depreciation: When the Section 179 Deduction is reached, your company can immediately deduct 100% of the amount of new or used equipment for the year in which it was placed in service.
For 21% C-Corporations, the tax benefits break down this way:
- Section 179: Much the same as for 32% flow-through companies, C-Corporations can deduct the cost of new and used equipment from the company’s taxable income. Law changes for this year and beyond include increasing the annual limit on deductions to $1,000,000 on up to $2,500,000 in equipment purchases. This was previously capped at up to $2,000,000 in equipment purchases. Companies that purchase more than $2,500,000 in equipment in one year may still be able to benefit from the deduction by financing the purchases with an operating lease.
- Bonus Depreciation: Businesses can immediately deduct 100% of eligible equipment purchases the year they are placed into service. This is an increase from the previous 50% deduction. The 100% Bonus Depreciation will be available through 2022 and can now also be taken for new OR used equipment.