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.What types of equipment and software qualify for Section 179?
A wide range of equipment and software qualifies for Section 179, including:
- Networking equipment
- Storage devices
- Office equipment
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.How can MSPs benefit from Section 179?
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.