Updated: Nov 7, 2020
The Section 179 Tax Code allows businesses to deduct the full purchase price of software and/or equipment purchased within a given year, including Retrolux.
Not enough people take advantage of the Section 179 tax code, an incentive created by the government to encourage small to medium businesses to invest in themselves. The Section 179 code allows businesses to deduct the full purchase price of software and/or equipment financed within a given tax year, including software like Retrolux.
We’ve curated some great info on the Section 179 tax code where you will learn:
What Section 179 is and how it works
The spending cap, deduction and bonus depreciation limits for the year
What equipment and/or software is eligible for the deduction
Limitations to Section 179
How to apply for the Section 179 tax deduction
WHAT IS SECTION 179?
What if we were to tell you that you could save money by purchasing office equipment or software? It’s true—you can. But there are some things you need to know before you jump into “writing it off” mode. Section 179 may be your ticket to investing and expanding your business.
So, what exactly is Section 179? Section 179 is part of the IRS tax code that allows businesses to deduct the full purchase price of equipment and/or software that is purchased or financed within a given tax year. Section 179 was created by the government to encourage businesses, especially small businesses, to invest in their company and make purchases that positively impact business operations. Every year, the government sets the deduction limits and to apply, businesses fill out and submit a specific IRS form.
The important thing to remember about Section 179 is that only qualifying equipment and/or software is eligible for deduction. We will take a more detailed look on what qualifies. For 2019, you can deduct up to $1,000,000* in equipment and/or software purchases with a spending cap of $2,500,000 and bonus depreciation is set at 100%.
You may now be wondering what equipment and/or software qualifies under Section 179. Quite a bit—just be aware that everything must be bought and put into use for the current tax year you are claiming (between January 1 to December 31, 2019).
What is “off-the-shelf” software We mentioned earlier that on top of physical equipment, software is also deductible under Section 179. One of the key phrases used is “off-the-shelf” software. It sounds confusing at first, but basically off the-shelf software is any software that:
Is not custom designed for your business
Has not been substantially modified
Is available for purchase by the general public
One more thing to be aware of: all equipment and software that you plan on claiming must be used at least 50% for business purposes. And that’s basically it! Now when it comes to qualifications, the software qualifies if:
The software is purchased or financed
The software must be used in your business for income-producing activity
The software must have a determinable useful life
The software must be expected to last more than a year
A PAIR OF LIMITATIONS
Section 179 does come with a couple limitations. Luckily, the limitations are both relatively easy to understand.
HOW TO GET STARTED
Here’s where we tell you to contact a tax accountant. Although 179 is pretty straight forward, it’s always good to have a professional make recommendations. We do have some information to get you started though. When you sit down with a professional, you can go over your company’s financial status for the year, determine your business’s deduction amount and how to move forward in the application process. The tax accountant can also help identify which equipment and/or software purchases are actually eligible for the deduction.
To apply for the tax deduction, you will be required to fill out a special IRS tax form. The tax form, Form 4562, can be found on the IRS website. The instructions for the form, weighing in at a solid 20 pages is here. Again–it’s good to have a tax professional on hand. The form must be completed and submitted by the deadline of December 31, 2019 at midnight.
As a general side note, Section 179 is subject to change without notice every year. The best way to stay up to date about any changes is to periodically check the IRS website. To learn more about the Section 179 deduction, please visit Section179.org or IRS.gov.
If you’ve been thinking about purchasing an operating system to help you scale your smart energy solution business, now is the time!
Book a demo of Retrolux today to get started and take advantage of the Section 179 tax deduction!