With strong increases in jobs, wages, and output, small businesses deserve much of the credit for America’s economic growth in 2018. Small business productivity accounts for over half our nation’s private gross domestic product (GDP), so it’s no wonder the government is interested in keeping this sector strong.
Every year, the IRS updates policies pertaining to the taxation of small businesses. Anyone in the small business sector knows that taxation can be one of your highest costs. Here we outline one significant tax incentive, the IRS Section 179 deduction under the new Tax Cuts and Jobs Act, and explain how it can benefit your business.
What Is Section 179?
The Section 179 tax code has existed for many years, but since the 2008 financial crash, a number of federal stimulus initiatives have expanded it, making the code more accessible and beneficial to small businesses.
Essentially, Section 179 encourages small businesses to invest their profits in equipment purchases to grow the economy. It is a tax write-off which accelerates asset depreciation on new equipment, reducing business’ taxable income for the year of the purchase. Depreciations reduce your amount of business income subject to taxation. The higher your depreciations, the more money you keep in your pocket.
Normally, assets must depreciate over several years, according to write-off schedules set by the IRS. However, through Section 179, businesses can deduct the full purchase price of qualifying equipment or vehicles. Qualifying vehicles must exceed 6,000 pounds, be used at least 50% of the time for business purposes, and be put into service the same year they are purchased. Your business must also purchase, lease, or finance less than $2,000,000 annually in order to qualify for this benefit.
How Can It Help My Business?
How can Section 179 help you pay less in taxes? Let’s look at an example: According to current IRS policy, computers have a depreciable life of 5 years. Normally if you purchase a $10,000 computer, you can only write off $2,000/year, leaving your business subject to taxation for the remaining value and diluting the benefit of the deduction.
However, using the Section 179 tax code, the entire purchase price of a piece of equipment is written off the year it is bought and put into service. Obviously the more expensive the equipment the more expensive the taxation over time, and thus the more beneficial the one-time write off. If you were to purchase a new sweeper for your fleet for $90,000, you will save thousands in taxes that would normally be lost to depreciation over the life of a write-off schedule. Being able to write the entire truck off at once frees up money for more purchases, boosts the economy, and keeps your business competitive.
There are a few limitations to this benefit to keep in mind. Section 179 cannot be used to drive business income to a negative number, only to 0. Additionally, applying Section 179 to a piece of equipment reduces the cost basis of that asset to zero. So if you were ever to sell it, you would have to pay taxes on any money you earn from it. Thus, Section 179 best applies to high quality equipment which you plan on keeping for a long time.
New Updates to the Law
The Tax Cuts and Jobs Act was signed on December 22, 2017, and it changed some of the laws governing Section 179. Previously the deduction cap for new equipment was $500,000, but this has doubled to $1 million for vehicles placed into service in 2018.
The update also expands opportunities for deductions related to “qualified improvements to property.” These include interior building improvements which occurred after the original date the property went into service. There are a few exclusions, among them elevators and escalators, building enlargement, and structural alterations. But if you made (or plan to make) any improvements to your property, such as remodels or updates to offices or the warehouses where you store your sweepers, you should research these new codes and consult your tax expert before the year ends.
A little research can go a long way in keeping your business strong and competitive. Please contact us if you’re interested in reducing your tax liability through the purchase of a new NiteHawk Sweeper; we’d love to hear from you! Call 1-800-448-9364 or visit us online at www.NiteHawkSweepers.com.
Source: New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act. (9 April 2018.) Internal Revenue Service. Available at https://www.irs.gov/newsroom/new-rules-and-limitations-for-depreciation-and-expensing-under-the-tax-cuts-and-jobs-act.
Custom Options: The NiteHawk Engineering Team can design and fabricate unique options to save you time and money.
Cab and/or Hopper Wrap: Custom designs, colors and logos, commercial grade vinyl wrap professional install
Cab and/or Hopper Paint: Commercial grade paint of cab, hopper can be powder-coated to match or a different color
Side Suction Hose: 6″ Suction Hose, 8′ reach, Aluminum Nozzle and Handle for picking up debris outside of paved areas
Passenger Side Curb Broom: Vertical Digger Curb Broom, Independent Controls
Dust Suppression System: Watery Spray System, Front Bumper Spray Bar, Sweeping Head and Curb Broom Nozzles, 100 Gallon Tank Capacity
Storage Tray: 8 Sq Feet storage with 5″ lip driver side mounted for additional easy access storage.
(Not compatible with Alternative Fuel)
Work Light – Rear: Custom Spec Wide Angle View 15″ White LED Bar Light, Rear Bumper Mount. Dramatically increases visibility and illumination of your sweeping path.
Work Light – Front: Custom Spec Wide Angle View 15″ White LED Bar Light, Front Bumper Mount. Dramatically increases visibility and illumination of your sweeping path.
Traffic Advisor Light Bar: Low Profile SUPER-LED Direction Bar. safely notify other traffic when sweeping in busy locations
Multi View Cameras: 3 Camera System, Dashboard Display, Driver side, Passenger side and rear view monitoring provides increased visibility and safer operation.
LED Flasher Bar: High Visibility 17″ Amber LED Light Bar, Center Mounted
Bumper Strobes: High Visibility Amber LED Flashers – 2 Front Bumper Mount, 2 Rear Bumper Mount. Provides 360 degree flasher view of equipment
Rear Magnet Bars: 16″ magnet trays mounted to sweeping head, designed to protect your rear tires from sharp metal debris damage.
Front Magnet Bar: Front Bumper Under Mount, Manual Activation, 72″ wide protects tires from sharp metal debris damage.
Hopper Coating: Interior Coating – Powdercoat or Rhino Lining for additional protection
HD Front Bumper: Heavy Duty Safety Bumper engineered 3/16″ high strength steel, powder-coated, padded front plate designed to protect your investment.
Fire Extinguisher: Driver-side Mount, High Visibility All Weather Cover, 10lb, A/B/C rated
Backup Alarm: External audible alarm, connected to reverse position
Trailer Tow Hitch: Class IV trailer hitch/receiver with 7 pin trailer wiring connection
Alternative Fuel: LPG – Liquid Propane: 21 Gallon GGE, bifuel system
Chassis Options: GMC 2500HD, Cheverolet 2500HD, Ford F250
Custom Options: NiteHawk Engineering Team can design and fabricate unique options to save you time and money
Poly/Steel Broom: 75/25 poly/steel blend for longer broom life and better performance
Low Profile Toolbox: 14 Cubic Feet Storage, Driver and Passenger side access doors (locking)
Traffic Advisor Light Bar: Low Profile SUPER-LED Direction Bar. safely notify other traffic when sweeping in busy locations