Year-End Tax-Planning Moves for Businesses

Last updated on October 19th, 2020

The Holidays are here, it’s the time to plan time with family and loved ones… it is also the time to consider tax-saving opportunities for your business before its tax year-end. Some of these opportunities may apply regardless of whether your business is conducted as a sole proprietorship, partnership, limited liability company, S corporation, or regular corporation 

Section 179 Deductions

Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year (new or used equipment). That means that if you buy (or lease) a piece of qualifying equipment and place that equipment in service, you can deduct up to $510,000.00 in 2017, provided your company did not purchase more than $2,030,000.00 in qualifying equipment.  If your company did exceed that threshold, then the 179 deduction for your company begins to be reduced on a dollar for dollar basis until it there is no Section 179 deduction.

Examples of qualifying equipment for section 179 purposes would be furniture, machines, tools, computers, equipment, and vehicles (with many exceptions). The qualifying equipment and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. If it is not, if still qualifies however it will be reduced.

Vehicles that qualify for the full Section 179 deduction are Heavy “non-SUV” vehicles with a cargo area at least six feet in interior length (this area must not be easily accessible from the passenger area.) To give an example, many pickups with full-sized cargo beds will qualify (although some “extended cab” pickups may have beds that are too small to qualify). Vehicles that can seat nine-plus passengers behind the driver’s seat (i.e.: Hotel / Airport shuttle vans, etc.) qualify. Vehicles with: (1) a fully-enclosed driver’s compartment / cargo area, (2) no seating at all behind the driver’s seat, and (3) no body section protruding more than 30 inches ahead of the leading edge of the windshield. In other words, a classic cargo van, qualifies.

For passenger vehicles, trucks, and vans (not meeting the guidelines above), that are used more than 50% in a qualified business use, the total deduction for depreciation including both the Section 179 expense deduction as well as Bonus Depreciation is limited to $11,060 for cars and $11,160 for trucks and vans.  Certain vehicles like SUV’s or Crossover’s (with a gross vehicle weight rating above 6,000 lbs but no more than 14,000 lbs) qualify for expensing of up to $25,000.

Bonus Depreciation

Bonus depreciation is a valuable tax-savings tool it allows your business to take an immediate first-year deduction on the purchase of qualifying business property. The deduction for federal tax purposes (New York does not allow Bonus Depreciation) is equal to 50% of its cost for 2017, 40% in 2018 and 30% in 2019. It only applies to the purchase of new property, not used property.

Qualified property is property with a useful life of 20 years or less (machinery and equipment, furniture and fixtures, land improvements, computer equipment, off the shelf computer software).  It also includes “Qualified leasehold improvement property” which is an improvement made to the interior portion of a nonresidential building, it does not include the enlargement of a building, elevators and escalators, structural components that benefit a common area and internal structural framework.

It’s not too late to take advantage of either one or both of these deductions, please take the time to adequately plan for enjoying the holidays and for your business.