Thankfully 2016 will not be a repeat of the last two years, where Congress gave small business owners only a few days' notice regarding how major purchases would impact their 2014 and 2015 taxes.
Congress voted in December 2015 to make the higher limits to the Section 179 Deduction permanent, adjusting to inflation. That's great news for small business owners - now you and your CPA can make purchase plans earlier in the year and know what the financial impact will be on your year-end taxes.
What Purchases Qualify For Deductions?
For those who are still contemplating a purchase for this tax year, here are some highlights of what 2016 purchases would qualify for Section 179 deductions:
- Tangible personal property primarily used for business use, such as:
- New or Used Machinery and Equipment
- Computer Software
- Tangible personal property attached to a building (including refrigerators, equipment, signs, counters, etc)
- Larger Vehicles for Business Use (with limits)
- Air-Conditioning and Heating Units are no longer excluded (new for 2016 tax year)
- Certain Qualifying Real Property (in general, qualified leasehold improvement property, but there are several restrictions to this)
How Much Can You Deduct?
- In general, no more than $500,000 for tangible personal property.
- Deduction phases out for businesses who purchase more than $2M of equipment.
- 50% Bonus Depreciation rule applies for 2016 purchases of new equipment only (take advantage... this bonus percentage drops after the 2017 tax year).
- The total cost you can deduct is limited to your taxable income for the same year.
- Limits and restrictions apply so it's important to read the fine print. The IRS has great details on their website, including some helpful examples (the current site shows 2015 limits, but the samples are nonetheless helpful).
For More Information:
Check out these articles for more helpful information on Section 179, and be sure to speak with your CPA about how the changes impact your particular business.
- Renewal of Sec.179 Expensing and Bonus Depreciation Offers Tax-Saving Opportunities (from AccountingWeb.com, Mar 2016 )
- Six Tax Breaks Congress Just Passed (from MarketWatch.com, Dec 2015)
- Electing the Section 179 Deduction (from IRS.gov, for 2015 Tax Year)
- 2016 Vehicle Depreciation Limits (from JournalOfAccountancy.com, April 2016)