Big Write-Offs for Vehicle Purchases
BREAKING NEWS: December 19, 2014
H.R. 5771 - the Tax Extenders Bill - was enacted today. This bill retroactively expands the Section 179 deduction limits through 12/31/2014. It does not cover 2015, so vehicles must be put into service in 2014 to take advantage of 2014's $500,000 deduction limit.
The Section 179 deduction is scheduled to decrease from $500,000 to $25,000 on January 1, 2015. In order to take advantage of 2014's more generous deduction, you must put your vehicles into service by December 31, 2014. Don't wait until it is too late!
What is the Section 179 Deduction?
Most people think the Section 179 Deduction is some arcane or complicated tax code. It really isn't, as the following will show you.
Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. That means that if you buy, lease or finance a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It's an incentive created by the US Government to encourage businesses to buy equipment.
2014 Equipment Purchases
First Year Write Off:
Bonus First Year Depreciation*:
Normal First Year Depreciation:
Total First Year Deduction:
Potential Tax Savings:
Total Equipment Cost:
*Used vehicles do not qualify for bonus first year depreciation.
Section 179 works like this...
When your business buys certain pieces of equipment, it typically gets to write them off a little at a time through depreciation. In other words, if your company spends $50,000 on a vehicle, it gets to write off say $10,000 a year for five years. (These numbers are only meant to give you an example.)
Now, while it's true that this is better than no write off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it.
In fact, if a business could write off the entire amount, they might add more equipment this year instead of waiting. That's the whole purpose behind Section 179. See the table below for an example of the savings that could be available to you.
Limits of Section 179
Section 179 does come with limits - there are caps to the total amount written off ($500,000 in 2014), and limits to the total amount of the equipment purchased ($2,000,000 in 2014.) The deduction begins to phase out dollar for dollar after $2,000,000, so this makes it a true small and medium-sized business deduction.
Who Qualifies for Section 179?
All businesses that purchase or finance less than $2,000,000 in business equipment should qualify for the Section 179 Deduction. In addition, most tangible goods qualify for the Section 179 Deduction (see list below). Also, to qualify for the Section 179 Deduction, the equipment purchased must be placed into service between January 1, 2014 and December 31, 2014.
The deduction begins to phase out if more than $2,000,000 of equipment is purchased - in fact, the deduction decreases on a dollar for dollar scale after that, making Section 179 a deduction specifically for small and medium-sized businesses.
Material goods that generally qualify for the Section 179 Deduction
Please keep in mind that to qualify for the Section 179 Deduction for 2014, the below equipment must be purchased and put into use between January 1, 2014 and December 31, 2014.
- Business vehicles with a gross vehicle weight in excess of 6,000 lbs
- This includes every vehicle Hengehold Trucks sells except for mini pickups, mini cargo vans and mini passenger vans:
- Cargo Vans
- Passenger Vans
- Box Vans
- Pickups (excluding mini pickups)
- Utility Trucks
- Flatbeds & Stakes
- Dump Trucks
- Vehicles 6,001 lbs to 14,000 lbs GVW qualify for a maximum $25,000 deduction per vehicle
- Vehicles over 14,000 lbs GVW are not subject to the $25,000 maximum deduction per vehicle
- The GVW of each of our vehicles is shown on the vehicle’s description page
- Equipment (machines, etc) purchased for business use
- Tangible personal property used in business
- Computer Software (off the shelf)
- Office Furniture
- Office Equipment
- Property attached to your building that is not a structural component of the building (i.e.: a printing press, large manufacturing tools and equipment)
- Partial Business Use (equipment that is purchased for business use and personal use - generally, your deduction will be based on the percentage of time you use the equipment for business purposes.)
Section 179 offers small businesses a great opportunity to maximize their purchasing power. In addition, the American Taxpayer Relief Act has provided the small business owner with generous new (and higher) deduction limits. Most of the equipment your business will purchase or lease qualifies for the deduction, so do your homework and verify that your company is leveraging the Section 179 Deduction this year.
Electing to take the Section 179 Deduction
If you are a small or medium sized business owner who has purchased, leased or financed equipment in 2014 and placed it into service during the calendar year, then you need to elect to take the Section 179 Deduction to ensure that your business captures the available tax savings (it is not automatic - you must elect to take it.)
Fortunately, electing to take the 179 Deduction is easy…
When to take the Section 179 Deduction
You elect to take the deduction when you file your tax return for the year, whether you are filing on time or received an extension.
How to take the Section 179 Deduction
To elect to take the Section 179 Deduction, simply fill out Part 1 of IRS form 4562 and attach it to your tax return (much like any other additional form, such as a "Schedule C" or similar.)
You must keep complete records of the business equipment you leased or purchased during the year, including where you acquired the equipment and the date the equipment was acquired and placed into service. If filing for 2014, the equipment must have been leased or purchased and placed into service between January 1, 2014 and December 31, 2014.
This information is intended to be an illustration of a potential Section 179 deduction. Please consult a tax professional to determine Section 179’s applicability to your business.
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