Explanation, please: What’s IRC section 179?

Of course you want the latest business tools for your department—things like new computers or payroll software. But other departments want new things, too, and there’s only so much money to go around.

The best way to bolster your chances of getting what you want is by preparing cost projections and knowing the proper lingo as you make your case.

Under Section 179 of the tax code, qualified taxpayers can deduct the cost of property, including software and computers, instead of having to depreciate it. That should make the cost more palatable to upper management.

It’s deductible! You know something that other departments don’t, maybe with the exception of finance: deducting an item doesn’t mean you recover the entire cost. While the value of deductions depends on your tax rate, deductions can cushion the financial blow.

Section 179 used to be aimed at employers that spent only small amounts on their businesses. But the Tax Cuts and Jobs Act (a/k/a tax reform) substantially increases those amounts, and with that, the number of businesses that can take advantage of Section 179.

Payroll Handbook D

For 2018, you can deduct up to $1 million. The deduction is phased out for property costing more than $2.5 million.

Sounds good, but . . . A limit of $1 million may mean there’s enough to go around to satisfy every department’s needs. Even so, there are a few things to watch out for:

  • The amount you can deduct for a taxable year can’t exceed the company’s taxable income for that year.
  • You can carry forward into succeeding tax years any amount that’s not allowed as a deduction due to the taxable income limit, until the deduction is used up.
  • Section 179 deductions are optional. If you take it, you can’t take a general business credit.
  • Section 179 deductions don’t reduce earnings and profits at once. Instead, the deductions are spread out equally over a five-year period.