Section 179: A Real World Example of the Cost Saving Potential

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We may have mentioned the benefits of the Section 179 deduction once or twice (like we did here, here, and here).  But the truth is, this deduction is a simple one that many small business owners still seem to neglect and doing so can potentially cost you thousands.

To see how much Section 179 could really save you, in a real world situation, let’s take a look at a hypothetical company – Build it Up Construction.

Build it Up has an equipment cost of $65,000 for a new backhoe that they purchased this year.  With Section 179, the company can deduct 100% of that cost.  Here’s the math:

Build it Up Construction’s Equipment Cost:

$ 65,000

 Section 179 Deduction (up to $139,000):

$ 65,000

 50% Bonus Deduction*

(Equipment Cost – Deduction) x 50%

*only for new equipment

$ 0

 Total First Year Deduction

(Section 179 Deduction + Bonus Deduction)

$ 65,000

Total Savings

(Total Deducation X 35% Tax Rate)

$22,750

As you can see from the above formula, Build it Construction saved a total of $22,750 just by doing a little math and filing some paperwork, namely the IRS Form 4562.  The best part is this deduction can be used for a whole host of different types of equipment, from forklifts and cranes (and yes, backhoes), to computers and servers and business vehicles.

Don’t forget, the limits for this deduction have been dramatically decreasing over the years and will decrease again in 2013.  So, if you’re thinking you may be in the market for some new equipment, now is the year to do it.

Are you planning on making use of Section 179 this year?