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What is Tax Section 179 & Who Qualifies?

To 179 something, means to deduct its entire cost in the year of purchase on your tax return. Any business that purchases equipment can qualify for Tax Section 179 but it’s particularly helpful for manufacturers looking to offset equipment costs. The Code allows for the full purchase price of qualifying items to be deducted off the company’s gross income in computing the amount of income it must pay tax on for that year.

While Section 179 isn’t new, recent updates now allow businesses to deduct the full purchase price of the equipment or software all at once as opposed to deducting a portion of the cost over several years.

How Automating Helps Your Bottom Line

The labor shortage has been a significant challenge for manufacturers and that’s not expected to change in 2023. Automating low-skill positions has become a priority for businesses looking to gain a competitive edge. Investing in cobots, upgrading part feeders, or replacing aged machines can help alleviate some of the challenges associated with the competitive labor market. And, if you deploy your solution before the end of the year, it could potentially improve your cash reserves headed into next year by reducing your tax bill.

Automation Solutions qualify for the Section 179 tax deduction if the below requirements are met. 

• The equipment must be purchased (note: leasing doesn’t qualify) and used primarily for business purposes
• Your business must use the equipment in the year you take the deduction
• Not acquired from a related party. This includes siblings, spouses, parents, grandparents, descendants and businesses, trusts, and charitable organizations with which you have a relationship.
• For 2022, you can expense up to $1,080,000 for 2022.
• If you purchase equipment over $2,700,000, the amount you can 179 will decrease dollar-for-dollar. Meaning, you will reach zero once you’ve purchased $3,780,000 in equipment.

Important: There is a hard deadline for Section 179 deductions. Equipment must be purchased and put into use by 11:59 PM on 12/31/2022.

For business owners, CFOs and controllers, the last two months of the year are crucial. Anticipating future opportunities and equipment needs will have a serious impact on the bottom line. Year-end business planning should always include Section 179. The tax break can also be applied to other needed machinery and equipment. For plants with aging machines and high maintenance and repair costs, it may make financial sense to push forward a purchase in order to claim the deduction. Every plant is unique. Consulting with your accountants and tax consultants is the best way to develop the tax strategy that’s right for your business.

If you would like to learn more about automation solutions and Tax Section 179, let’s connect. We’d be happy to connect and answer any questions.