Section 179 of the tax code allows companies to immediately write off up to $25,000 in technology, off-the-shelf software and other equipment in 2014 as part of the reinstatement of 55 tax breaks at the end of this past year. It’s great that businesses can do this, but it pays to know the ins and outs of the tax code to best take advantage of its benefits. Wylie Wong, in an article in BizTech gives us 5 ways to take advantage of these breaks.
1. Make buying decisions based on your business’s needs, not on the amount of the tax deduction.
If you need technology or equipment to grow the business, then buy it. Even if you don’t get the full deduction the first year, you can still deduct the remaining costs under the regular depreciation schedule over the next four years.
On the flip side, don’t purchase technology and other equipment just for the sake of having a tax write-off.
2. Off-the-shelf software means just that.
It’s software you can buy at any store, off the shelf. Section 179 does not allow businesses to deduct custom software or even cloud-based software they subscribe to because it’s not an asset that they own. Companies can deduct cloud-based software as a period expense.
3. Technology or equipment must be “placed in service” in the year you want to take the deduction.
You cannot order and pay for something on December 28, take delivery in 2016 and get the 2015 tax write-off.
4. Discuss different scenarios with your accountant.
Businesses can use Section 179 alone, in combination with bonus depreciation, or bonus depreciation alone…it’s important for company executives to engage their certified public accountants and explain their business plans for the next few years, so that the best tax benefits can be suggested.
5. Consider deferring to next year, under certain conditions.
“If you need the stuff and it’s late in the year, then it’s a wonderful time for tax deductions,” says Bob Hampton, a certified public accountant at Impart Financial in Fort Worth, Texas. “But if you can defer it to the new year because you expect to be in a higher tax bracket next year, then it is to your advantage to defer that expense.”
Questions? Comments? Let us know in the comments section below.
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