Late 2015 marked the end of the annual year-end dance in Congress when the Protecting Americans from Tax Hikes (PATH) Act became law on December 18, 2015. For the first time, many popular and tax-saving provisions were finally made permanent. Section 179 expensing was permanently increased from a measly $25,000 to a generous $500,000 per year. That amount will go up every year with inflation. Bonus depreciation is also back for now, but will phase out beginning in 2018.
The combination of these laws can save you a lot on taxes when you buy equipment, furniture, software or certain types of real property for your business. Using Section 179, you can immediately write off $500,000 a year. And for the first time, HVAC equipment is also eligible.
You still need net income to use Section 179. You can also take advantage of bonus depreciation and write off 50% of your purchases of new fixed assets the year you buy them. There’s no limit to how much bonus depreciation you can take, and you can use it even if you have a loss. Plus the IRS decided you can elect to expense things that cost less than $2,500 per item or invoice. This means that fewer of your purchases need to be put on the balance sheet and depreciated. This alone can save you a lot on taxes, and simplify your bookkeeping.
Call our office now so we can help you with a strategy to save taxes on this year and in the future.