Section 179 Tax Benefit – Tax Savings Opportunity for 2016
Section 179 2015 Note – In December 2015, the government approved legislation making Section 179 an ongoing part of the tax code. The annual deduction of $500,000, which is available for 2016 equipment investments, will be indexed in the future to inflation.
Section 179 is a tax benefit brought through by the federal government which enables you to accelerate the depreciation on equipment purchases. What that means is you can take the entire depreciable life of that equipment and push it all into that first year, resulting in a very significant tax savings. When the government comes forward with tax incentives like Section 179, it’s really a great opportunity for small business owners to acquire their equipment. The government wants to spur on the economy and spur job growth. One of the very best ways to do that is to encourage capital equipment purchases because that encourages manufacturing, which is one of the biggest drivers in our economy.
With EMV for gas pumps creating an investment need over 2016-17, business owners may be able to use Section 179 to make the upcoming acquisition more cost and cash flow effective. For a business that’s taxed at a 30% rate, Section 179 could enable you to accelerate $165,000 in tax savings that you would otherwise pay in Federal and State taxes.
Let’s use a real-life example. Let’s say you have a $600,000 acquisition that you’d like to make. It’s comprised of EMV gas dispensers, it’s comprised of a POS system, a canopy, some underground tank work, beer caves, maybe a car wash around back. Section 179 will give you a tremendous tax benefit by acquiring that equipment this year. Remember, the first $500,000 is 100% tax deductible in the current year. That additional $100,000 is 50% tax deductible. So, that $600,000 acquisition results in a tax write-off this year of $550,000. If you’re in the 30% tax bracket, that’s going to result in a tax savings of $165,000.
Let me say it a different way. If you were to not make that acquisition, you would have to pay an additional $165,000 in taxes to the federal government this year.
Planning is the key when it comes to a large spend and the significant spend that’s coming with EMV. Section 179 limits have not been finalized by Congress yet. Consult your tax advisor and your financial planner to help you come up with the very best strategies to help you and your business succeed through the EMV mandate.
How Section 179 Can Help Your Cash Flow - Plan Now
The following is an excerpt from a story that originally appeared in CSP Online. For the full story, please click here.
Fuel retailers, jobbers, and c-stores need to consider taking action now in order take advantage of potentially significant tax savings in the 2016 tax year. Capturing these tax savings will impact cash flow in 2017, providing funds that can be invested to help grow your convenience store business. Utilizing these tax strategies can pull cash into your business that would otherwise be unavailable for 5 to 7 years. This article covers the following tax saving strategies for convenience store owners and gas station operators:
- How does 179 work?
- What is bonus depreciation?
- What fueling equipment and c-store equipment qualifies for Section 179?
There are myriad variables in any financial situation. Patriot Capital does not provide tax, legal or accounting advice. It is recommended that businesses consult with their tax professional to ensure that they are maximizing the available tax benefits from Section 179, Bonus Depreciation and the Alternative Fuel Infrastructure Credit.
Additional information about Section 179 may be found in this IRS publication.