If there’s one thing most Americans would agree on, it’s that 2020 has been a particularly challenging year, especially for small businesses. One of the bright notes in an otherwise somber time comes with the news that the ceiling for Section 179 deductions — which allow businesses to write off the entire purchase prices of qualifying equipment for the current tax year — has been significantly raised.
Included within the Tax Cuts and Jobs Act (TCJA) is a provision that doubles the maximum Section 179 deduction — from $500,000 to $1 million and indexed for inflation. It’s actually $1.04 million in 2020 and will increase to $1.5 million in 2021. There are just two special rules to adhere to:
- Your Section 179 deduction can’t exceed your business’ income.
- Your deduction is reduced on a dollar-for-dollar basis for costs above the threshold of $2.59 million in 2020 (also raised by the TCJA, and increasing to $2.62 million in 2021).
While your deduction must also be for qualifying equipment, since this tax benefit is aimed at general business equipment as well as off-the-shelf software — if you use it in your business, it probably qualifies. For 2020, that includes tangible business equipment purchased to modify your business and/or conform with COVID-19 restrictions and measures.
You can use the Section 179 calculator here to determine how much money you may save via the deduction — and certainly discuss your specific situation with your tax professional.
How CSC Can Help?
If your business is unable to overcome the challenges presented by traditional equipment financing, you might think you’re out of luck when it comes to taking advantage of section 179 for 2021 — but you may not be. Clear Skies Capital is in the business of supporting your success, even if your business is a poor candidate for a loan from a bank or other traditional source due to lack of consistent cash flow; insufficient collateral, credit, operating history, and management team; poor debt-to-income ratio; customer concentration; and economic concerns, among other things.
If you’re looking forward to ramping up in 2021 and weighing whether a late-year equipment purchase makes sense, knowing about the Section 179 deduction could be what moves the needle in favor of pulling the trigger. We have worked with many clients who are likely in the same situation you are in, and we’re more than happy to share our experience with you.
With no end in sight yet for the pandemic — and things actually starting to tighten up again as virus numbers soar — many small businesses will be hard-pressed to make it through to “the other side.” If you have questions about the Section 179 deduction or your equipment financing options, please contact Clear Skies Capital at 800-230-9822 or firstname.lastname@example.org and someone from our Client Services team will promptly respond.