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Tip: Year-End Technology Purchases May Lower Your Tax Bill

Tip of the Month

November 2015

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Tip: Year-End Technology Purchases May Lower Your Tax Bill

Before year’s end, make sure you take advantage of tax deductions that are intended specifically to help reduce technology costs for small- and mid-sized businesses. Section 179 of the tax code allows business owners to write off the cost of new or used computer equipment and off-the-shelf software purchased for their businesses. The current deduction limit is $25,000. Because Section 179 can change from year to year, it’s important to take advantage of this write off while it is available. Most technology purchases will qualify, but it is a good idea to consult your tax professional to make sure that your intended purchases will meet the requirements for a tax deduction.

Here are some basic guidelines that you need to know:

  • The deduction limit for Section 179 is $25,000 and is good only for 2015. Purchases must be made or financed by Dec. 31, 2015.
  • If you buy (or lease) equipment that qualifies under this Section, you may deduct the entire purchase price from your gross income.
  • There is a spending cap of $200,000 for equipment purchases. Spend more, and the Section 179 deduction available to your company will begin to be reduced on a dollar for dollar basis. The spending cap makes this particular tax break a true “small business incentive” created especially to provide tax relief to small business owners and to encourage small firms to invest in new equipment to grow their businesses. As part of the recent stimulus bills designed to boost the economy and help manufacturers, small businesses are the biggest beneficiaries of the current Section 179.
  • The types of equipment that may qualify for the tax break (double-check with your professional tax advisor before buying or leasing) include:
    • Laptops, tablets, PCs and smart phones
    • Software for Windows and other off-the-shelf software programs
    • Network equipment, including security hardware/software
    • Printers, servers and server upgrades
  • The equipment must be primarily intended for business purposes – or used for business more than 50 percent of the time it is in operation.
  • In previous tax years, after a business had reached the spending cap for Section 179, bonus depreciation would kick in for eligible new equipment. Bonus depreciation is not available for the 2015 tax year. Another major change is the revision of Section 179 to alter the way it was used to write-off vehicle purchases. The so-called “SUV tax loophole” has been significantly reduced. Your tax professional can update you on how the 2015 tax code affects business vehicles.

Section 179 can be a big help to small businesses. It makes good sense to take advantage of this generous tax rebate while it is still available. Remember, the only thing that is guaranteed in the tax code is change. Act now, because year-end will be upon us before we know it.

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These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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