The Tax Reform Act of 2017 made several changes to the tax code that could provide huge benefits to small and medium businesses. One area of significant improvement is the purchase of SUVs and computer equipment as a business expense.
The new guidance, directly from the IRS website, reads:
Taxpayers may choose to include the value of any Section 179 property as payment and deduct it from the year the property was put into service. The new law increases revenue from $ 500,000 to $ 1 million. It also raised the possibility of withdrawals from $ 2 million to $ 2,500.
Article 179
In previous years, when your business purchased qualifying equipment, it was usually written off once through depreciation. For example, if your business spends $100,000 on computer equipment, it will typically deduct a small percentage of the $100,000 annual expense. If $10,000 is written off each year, it can take up to 10 years for the equipment to be fully depreciated. It’s certainly better than nothing. But it would be sweeter to be able to fully depreciate that $100,000 in the year your company bought it. That’s exactly what Section 179 for Cadillac Escalade does – it allows your business to write off the full purchase price of eligible equipment for the current tax year. Sounds great right? Next, you might be wondering what types of purchases qualify for this tax benefit. If so, read on.
Eligible Properties
The list of property permitted under section 179 is as follows:
- Equipment (machines, etc.) purchased for commercial use
- Tangible personal property used in business
- Commercial vehicles with gross vehicle weight over 6,000 pounds
- Computer
- Computer “off the shelf” software
- Office furniture
- Office Supplies
- Property of non-building structural components attached to your building (i.e.: printing presses, large manufacturing tools and equipment)
- Partial business use (purchasing equipment for business and personal use: generally, your deduction will be based on the percentage of time you use the equipment for business purposes).
- Certain improvements to existing non-residential buildings: fire suppression, alarm and security systems, HVAC and roofs.
- The areas we will focus on are the computer equipment and commercial vehicle segments. These are the parts my CPA helps me leverage in my small business.
Buy a vehicle in your business
This is the area most people probably think of when they talk about Cadillac Escalade Section 179. It’s important to realize that there are two vehicle classifications mentioned in this particular tax code – light passenger cars and SUVs/trucks that weigh more than 6,000 pounds. A key requirement is that the vehicle must be in business at least 50% of the time. The amount you can depreciate minus the percentage of time the vehicle is used for personal use. Let’s take a potential $10,000 write-off as an example. You can only write off $7,500 from $10,000 if the vehicle is used 75% of the time for commercial purposes. Allocating 100% of vehicle usage to a business is nearly impossible for most small business owners. Even if I have other vehicles to drive, my CPA still recommends 93 – 95% as a cap for business use allocations. This percentage better reflects reality and will also reduce the likelihood of sending red flags to the IRS.
Light passenger vehicle
For passenger vehicles that are used at least 50% of the time for business purposes, the deduction is $11,160 for cars and $11,560 for trucks and vans. Given the current cost of most cars and trucks, you may only get a partial write-off by using passenger vehicles in your business.
SUVs and Trucks
That’s where things get interesting when we get into SUVs and trucks over 6,000 pounds. Section 179 allows your business to depreciate 100% of the vehicle price in the first year. Again, your vehicle must be over 6,000 pounds to receive this special treatment. It’s also important to note that the SUV/truck must also weigh less than 14,000 pounds. Therefore, the valid range is between 6,000 lbs. and 14,000 lbs. Finding vehicles below the cap is usually not a problem for most people. While I was researching for this post, I went to your local Toyota dealer to find some examples for you. I was lucky enough to find two products – a Toyota Land Cruiser and a Chevrolet Tahoe. An easy way to see if an SUV/truck meets the weight requirements is to check the sticker the manufacturer must put on it. You can usually find stickers in or near the driver’s side door frame.
Section 179 Vehicle List
- Cadillac Escalade 2WD
- Cadillac Escalade 4WD
- Cadillac Escalade ESV
- Chevrolet Express 2500
- Chevrolet Express 3500
- Chevrolet Silverado C1500
- Chevrolet Silverado C2500
- Chevrolet Silverado C3500
Takeaways
Section 179 is a good example of how our country code is written to help business owners being able to significantly lower your business tax while getting the equipment you need is even harder to pass. Hopefully, this post has given you some tips on how to take advantage of it.
