Section 179 of the Internal Revenue Code (IRC) is a tax deduction that allows businesses to deduct the full cost of qualifying equipment and software purchased or financed during the tax year. This can be a great way for MSPs and their clients to save money on technology purchases, especially if they are planning on making significant investments in new hardware or software.
MSPs should encourage their clients to take advantage of the Section 179 tax
deduction before the year end. Section 179 benefits apply to small and mid-size
businesses that spend less than $4.05 million per year for equipment.
For the 2023 tax year, the maximum
Section 179 deduction is $1,160,000 and the total equipment purchase limit is $2,890,000.
This limit applies to all qualifying equipment and software placed in service
during the year. Qualifying equipment includes new and used.
A wide range of equipment and software
qualifies for Section 179, including:
- Computers
- Servers
- Networking equipment
- Storage devices
- Software
- Office equipment
- Vehicles
To take advantage of the Section 179
deduction, businesses must purchase qualifying equipment and software during
the tax year and place it into service by the end of the year. Once the
equipment is in service, businesses can deduct the full cost of the equipment
from their taxable income.
MSPs can benefit from Section 179 in a
number of ways. First, it can help them save money on their own technology
purchases. Second, their clients can be spurred to make immediate purchases for
new equipment and software in this current tax year. And third, their clients
can use these deductions to help them continue growing the size of their
businesses.
Here are some tips on how to maximize Section 179 savings:
- Plan your technology purchases in
advance. The earlier you can purchase new equipment and software, the more
time you will have to place it into service before the end of the year.
- Consider financing your
purchases. This can help you spread out the cost of your purchases over
time and still take advantage of the Section 179 deduction. When
financing, you can only deduct the amount that was financed in that tax
year.
- Keep track of your purchases. Be
sure to maintain detailed records of all of your equipment and software
purchases, including the date of purchase, the cost of the purchase, and
the date the equipment was placed into service.
- Work with a tax advisor. A tax
advisor can help you to determine which of your purchases qualify for the
Section 179 deduction and can help you to calculate your deduction.