Limited Time for SMBs to take advantage of $1M tax deduction
SMBs need a break, and the IRS has offered a big one in the form of a tax deduction for 2020 qualifying expenses. This year, SMBs can use a tax deduction to help offset investment expenses. IRS guidance, also known as Section 179 of the IRS Tax Code, enables businesses to deduct the purchase price of qualifying equipment and software purchased or leased during the 2020 tax year.
The IRS is firmly behind this incentive and has even expanded the maximum expense deduction. The Tax Cuts and Jobs Act (TCJA) has increased the maximum deduction from $500,000 to $1 million. Many small and mid-size businesses (SMBs) have adopted new go-to-market models, processes, or tactics to adapt to the pandemic and its impact on consumer buying behavior. Restaurants and retail have needed to adjust to limited occupancy and more demand for online ordering and delivery. All in-person businesses have needed to invest in screening and PPE.
Other SMBs are faced with moving to remote workplaces, work-from-home scenarios, and hybrid offices. Cybercriminals followed closely behind these moves to remind everyone to invest in online security. As business owners have done their best to adapt, there is often a high cost in making the transition.
As businesses have been confronted with mandates to operate remotely, reduce occupancy, provide PPE, etc. Section 179 is offering a golden opportunity to offset the investment expense. The TCJA also amended the definition of “qualified real property” to mean qualified improvement property and some improvements to nonresidential real property, including roofs, HVAC, fire protection, and security systems.
For example, let’s assume a business owner wants to invest $125,000 back into their company through qualifying expenses. In the first year, they can deduct the entire $125,000. This deduction means that effectively they would save $43,750 (assuming a 35% tax bracket) on those expenses. The savings on tax would drive the net cost of the new equipment down to $81,250. Regardless of which equipment the business invests in, Section 179 is an excellent opportunity to save money.
So, what’s the catch? If you haven’t acted yet, there isn’t a lot of years left. The technology or equipment purchased must be operational by year-end. This deadline means you only have two months left to take advantage of this opportunity. With this fast-approaching deadline, businesses are looking for equipment or software to implement and benefit from quickly.
CIT is a recognized leader in managed IT services, providing tailor-made solutions to its customers. CIT is unique in the fact that we offer customers a single source – a one-stop-shop for all their IT needs from telecommunications, networking, AV, desktop, and mobile support to a wide array of security offerings. If you’re looking to invest in these areas, we can help you make smart decisions and take advantage of this looming tax deadline.
Disclaimer: CIT and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.