Purchasing Equipment in 2016 has Enormous Tax Benefits
Spray foam and Polyurea businesses can now benefit like never before through section 179 of the IRS tax code. This tax code was created by the U.S. government as an incentive for the small business owner to encourage them to purchase equipment and invest in their own company. The government's motivation for this tax code is to stimulate the economy. Even though the code was designed to benefit small business, larger corporations can reap benefits too.
In the past, companies typically would write off their purchases a little at a time through depreciation. For example, a company that spent $50,000 on equipment could write off approximately $10,000 per year over a five year period. Now, the new tax incentive allows companies to deduct the full purchase or lease price of qualifying new or used equipment, company-use vehicles, and off-the-shelf software from their gross income for the 2016 tax year.
Caps are in place for the amount business owners can deduct in order to ensure that small and mid-size companies are served by the new code. The caps allow up to $500,000 total tax deduction for the year and up to $2,000,000 specifically for equipment that is purchased, leased, or financed. All purchases much occur between January 1, 2016 and December 31, 2016 to be eligible for the new tax code deductions. Moreover, the equipment and software must be used more than 50% of the time for business purposes to qualify for the deduction. The following formula can be used to calculate business-use requirement. Multiply the cost of the equipment, vehicle(s) or software by the percentage of business use to calculate the amount eligible for the 2016 Section 179 tax code.
Other components of the tax code that can be taken advantage of are 50% Bonus Depreciation and Normal Depreciation. Bonus Depreciation means that companies can depreciate 50% of the cost of equipment acquired and used. However, this bonus depreciation will be reduced to 40%, in 2018 and 30%, in 2019. Normal Depreciation refers to how much of an asset's value has been used up. All depreciations must be done according to IRS rules. Consultation with a qualified accountant may be necessary to obtain a understanding of how to take full advantage of the new tax laws.
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