At this time of year, many business owners ask if there’s anything they can do to save tax for the year. Under current tax law, there are two valuable tax breaks relating to depreciation that may help your business reduce its 2019 tax liability. To benefit from these deductions, you must buy eligible machinery, equipment, furniture or other assets and place them into service by the end of the tax year. In other words, you can claim a full deduction for 2019 even if you acquire assets and place them in service during the last days of the year.

The Section 179 Deduction

Under Section 179, you can deduct (or expense) up to 100% of the cost of qualifying assets in Year 1 instead of depreciating the cost over a number of years. For tax years beginning in 2019, the expensing limit is $1,020,000. The deduction begins to phase out on a dollar-for-dollar basis for your 2019 tax liability when total asset acquisitions for the year exceed $2,550,000.

Sec. 179 expensing is generally available for most depreciable property (other than buildings) and off-the-shelf computer software. It’s also available for:

• Qualified improvement property. Generally, any interior improvement to a building’s interior. However, this does not apply to the internal structural framework, for enlarging a building, or for elevators or escalators.
• Roofs.
• HVAC, fire protection, alarms, and security systems.

The Sec. 179 deduction amount and the ceiling limit are significantly higher than they were a few years ago. In 2017, for example, the deduction limit was $510,000, and it began to phase out when total asset acquisitions for the tax year exceeded $2.03 million.

The generous dollar ceiling that applies this year means that many small and medium sized businesses that make purchases will be able to currently deduct most, if not all, of their outlays for machinery, equipment and other assets. What’s more is the fact that the deduction isn’t prorated for the time that the asset is in service during the year. This makes it a valuable tool for year-end tax planning.

Bonus Depreciation

Businesses can claim a 100% of the bonus depreciation deduction for the first year on machinery and equipment bought new or used. However, there are some exceptions. For one, you must purchase the machinery or equipment and place in service this year. The 100% deduction is also permitted without any proration based on the length of time that an asset is in service during the tax year.

Business vehicles

It’s important to note that the vehicle deduction may be applicable under Sec. 179 expensing and bonus depreciation. So buying one or more vehicles before December 31 may reduce your 2019 tax liability. But, depending on the type of vehicle, additional limits may apply.

Businesses should consider buying assets now that qualify for the liberalized depreciation deductions. Please contact us if you have questions about depreciation or other breaks to your 2019 tax liability.