Why Section 179 Deductions Are Important Now

Section 179 Tax Breaks
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The year is drawing to a close. So are your chances to get a Section 179 deduction that will save your small business some serious money.

When the clock strikes midnight, Section 179 will turn into a pumpkin. Today, you can get a deduction on up to $139,000 in equipment purchases, but when 2013 comes around that may shrink to as little as $25,000. That’s a huge difference, as Direct Capital has noted before.

If you’ve purchased any equipment up until now, or if you’ll have purchased or leased equipment delivered before the end of the year, this is perhaps your last opportunity to take advantage of significant tax savings. With the fiscal cliff looming and real concerns about rising taxes in the year ahead, it’s one of the biggest financial favors you can do your business at the moment.

It’s fairly simple to do. You just need to fill out IRS Form 4562 and list all eligible equipment for the deduction. That can include everything from earth-moving equipment like bulldozers down to computer software, but it’s worth checking out the IRS itself to see what and is not eligible. If you’ve filed correctly, everything falls under Section 179 and you’re under the deadline, you could get a nice deduction on that equipment. We really can’t recommend it enough.

What about those of you who aren’t purchasing equipment until 2013, though? Chances are you’re out of luck.

It is possible that Congress will act to save Section 179, perhaps even restoring the deduction totals to the $250,000 they were at in 2011. We just don’t consider it the most likely outcome, with Congress grappling with tax increases, the new and contentious health care law and spending cuts on the horizon that will command most of their attention. If there’s momentum on Section 179, it’s likely to come in 2014, after these issues have been sorted out.

There’s no time like the present, we say. Will you be filing for a Section 179 deduction in Q4?


  1. No doubt the section 179 deduction is valuable. The issue I have is that far too many lenders and equipment manufacturers imply the deduction has value greater than it really does. I have seen some people simply subtract the tax deduction from the purchase price of the equipment and then imply that the buyer is to get an X% discount of the price of the equipment.

    This could not be further from the truth for most small to mid size businesses. What those making such claims fail to point out is that 1) you need to have current profits to benefit from the deduction. No profits no deduction. 2) The tax break you receive is really just a temporary loan. You will pay the deduction back through future higher tax payments.

    This is not to say the deduction is worthless. On the contrary, its quite valuable. Just not in the way some people want to represent it. For example, aside for the time value of money benefit you get for reducing your tax bill now, you also have more cash in your business today for investment. Most companies do not have access to unlimited capital and therefore rely on capital rationing. If you have positive NPV projects that you would otherwise not be able to fund, the tax deduction can help you there. In this case, at a minimum you would realize the time value of money and the weighted average cost of capital for your firm.

  2. Doug, great comment and very pertinent. We like to make sure that people know the deduction exists and that it can be beneficial, but ultimately we want to make sure our clients are working with tax advisors to ensure they understand applicable deductions.

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