Maximize Your Tax Savings With Section 179

Section 179 allows businesses to deduct the full cost of equipment they buy and start using during the year.

• 2024 deduction limit: $1,220,000
  • For 2024, your business can deduct up to $1,220,000 of the cost of qualifying purchases. This increased deduction can cover a significant portion of your software investment.
• Phase-out threshold: $4,050,000
  • If your total equipment and software purchases exceed $4,050,000 in the tax year, the Section 179 deduction begins to phase out. This ensures that larger corporations don’t benefit as much from Section 179, keeping the focus on small and mid-sized businesses like yours.

One of the best things about Section 179 is that you can deduct the full cost of software in the same year you buy and start using it. This means you’ll get immediate tax savings and won’t have to spread the deduction over several years.

For example, if you buy an ecommerce platform in 2024 and it’s fully operational by year-end, you can write off the entire cost in 2024.

DistributionTo take full advantage of Section 179, a dealer must work closely with their accountant to ensure the deduction is properly applied. Here’s a step-by-step guide on how a dealer can implement the tax benefits and what they should communicate to their accountant:

Purchase the software or equipment

• Ensure that the software (or any other qualifying equipment) is purchased and put into service before December 31st of the tax year.
• Keep detailed records of the purchase, including receipts, invoices, and the date the software is installed and operational.

Communicate intent to use Section 179 to the accountant

• The dealer should inform their accountant that they plan to use the Section 179 deduction for their software investment. Here’s what they should tell the accountant:
  • What was purchased: Provide a list of the qualifying software and any other equipment that is eligible for Section 179.
  • Total cost: Let the accountant know the total purchase price of the software or equipment.
  • Date of service: Inform the accountant of the date the software or equipment was put into service (i.e., fully installed and operational for business use).
  • Financing or leasing details: If the software was financed or leased, provide details of the financing or lease agreement, as Section 179 also applies to financed or leased items.

Verify section 179 deduction eligibility

• Confirm that the software qualifies for Section 179 (i.e., it is off-the-shelf software used for business purposes more than 50% of the time).
• Ensure the total investment in software and other equipment stays within the 2024 limits: a deduction limit of $1,220,000 and a phase-out threshold of $4,050,000.

File IRS form 4562

• Your accountant must file IRS Form 4562 (Depreciation and Amortization) to claim the Section 179 deduction. The form requires details about the qualifying property, including its cost, service date, and deductible amount.
• Discuss whether you should also take advantage of bonus depreciation if your purchase exceeds the Section 179 limit.

Evaluate taxable income

• Section 179 deductions are limited by your taxable income for the year, meaning you can’t use the deduction to create a loss. However, any unused deduction can be carried forward to future years.
• Work with your accountant to ensure that the deduction is applied to maximize your tax savings for the current and future tax years.

Key points to communicate with the Accountant:

• "I’ve invested significantly in ERP/eCommerce software this year, and I’d like to apply the Section 179 deduction to this purchase."
• "The software was installed and put into use by [date]. Here’s the documentation of the purchase and implementation."
• "I’d like to ensure the entire cost can be deducted this year under Section 179. Can we also look into bonus depreciation if it exceeds the limit?"
• "Please help me maximize this deduction against my business income this year. I want to ensure we account for any limitations or carry forward any excess deduction."

By providing clear and organized information, your accountant can accurately calculate the Section 179 deduction and apply it correctly. This will result in a significant tax benefit for your business.