Small business leasing benefits from tax deduction

Three quarters of small business owners are taking advantage of a tax break which allows them to deduct the full or partial price of qualifying business equipment purchased or financed and put into use in the same year, up to a total of $500,000, according to research by Balboa Capital.

The company, which is a leading small business loan provider and equipment financing company, ran a nationwide survey into use of the Section 179 tax deduction, designed to gauge small business owners’ understanding and usage of this Internal Revenue Service (IRS) tax code, as well as their capital equipment investing plans for 2017.

The findings show that three in four small business owners are using Section 179 to deduct the cost of qualifying business equipment that was purchased or financed in 2016. In addition, 80% plan to invest in new or upgraded capital equipment in 2017.

The research found that, overall, 67% of small business organizations are familiar with Section 179, compared to a third who are not. Over half (59%) are using the Section 179 first-year bonus depreciation provision for equipment that was purchased or financed in 2015 or 2016, while a similar proportion said they would have purchased or financed more business equipment in 2016 if they had known the Section 179 deduction limit was $500,000.

Machinery equipment topped the list of small business organizations’ equipment acquisitions in 2016, followed by business vehicles, computers, heavy equipment, office furniture/fixtures, and printing/office imaging equipment. The survey shows that 80% of those polled plan to invest in new or upgraded capital equipment in 2017.

Balbao Capital points out that although last year’s Section 179 deadline has passed, small business owners can still take advantage of it in 2017. The current deduction limit is $500,000 for qualifying equipment that is purchased or financed and put into business use in 2016. There is also a first-year bonus depreciation of 50% which is scheduled to decrease to 40% in 2018.

The deduction, intended for small businesses, lets them deduct up-front rather than depreciate the costs of equipment like computers, vehicles, manufacturing machines and furniture, as well as some types of real property. But air conditioning and heating equipment, and land and improvements to land like paved parking areas are not eligible for the deduction.

If a business spends more than $2,030,000 on buying or leasing equipment that qualifies for the Section 179 deduction, the tax break is reduced by the amount they spend that exceeds that figure. However, companies can depreciate equipment that does not qualify for the Section179 break, and get a deduction that way.

The 2017 Section 179 deduction will be $510,000, up $10,000 from 2016, an adjustment to account for the effects of inflation.

“80% of business owners who responded to our survey plan to invest in capital equipment this year,” said Jake Dacillo, marketing director at Balboa Capital. “Based on the growing awareness of Section 179’s benefits among business owners, we expect a number of them to elect this business-friendly IRS deduction for their equipment purchases.”