Section 179 Tax Deduction for Manufacturing
Invest in new equipment for your machine shop before the end of the year, and take advantage of the Section 179 Deduction and 50% Bonus Depreciation Act.
Section 179 of the IRS tax code allows a deduction up to the full purchase price of qualifying equipment purchased or financed. So if you buy (or lease) a piece of qualifying equipment, you may be able to deduct all of the purchase price from your gross income (up to $500,000). This could mean a significant tax advantage, particularly since tax rates have increased for this year.
For the 2016 tax year, Section 179 allows businesses that spend less than $2,000,000 a year on qualified equipment to write off up to $500,000 in 2016 (new or used).
Section 179 Deduction: Section 179 for 2016 is at the $500,000 level. Businesses having more than $2 million of purchases in qualifying equipment (new and used) will have the Section 179 deduction phase-out dollar-for-dollar and completely eliminated above $2.5 million. In addition, the Section 179 cap will be indexed to inflation in $10,000 increments in future years.
50% Bonus Depreciation: This ill be extended through 2019. Businesses of all sizes will be able to depreciate 50 percent of the cost of equipment purchased and put in service during 2015, 2016 and 2017 (New Equipment only). Then bonus depreciation will phase down to 40 percent in 2018 and 30 percent in 2019. There is no limit on the amount of equipment purchased which can be depreciated at the 50% bonus level.
IMPORTANT: In order to qualify for 2016 tax incentive, equipment and software must be financed and in place by midnight December 31, 2016. Don’t forget to consult with an accountant for your specific tax implications related to these tax incentives.
For more information, go to Section 179 government web page or contact your accountant.