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Depreciation is a form of annual income tax deduction that allows you to recover the expense or other value of such property throughout its use. Section 179 of the United States Internal Revenue Code enables business owners to take an immediate tax deduction on the cost of depreciable business equipment (Department of the Treasury Internal Revenue Service, 2021). If your company owns property that qualifies for Section 179 deductions, asset depreciation helps save money on taxes.
According to Section 179, an individual must qualify for it across several requirements to acquire a tax deduction. For the tax year 2021, all companies that buy, fund, or lease new or used business equipment may be eligible for the Section 179 Deduction (Section 179 Tax Deduction for 2020, 2021). Apart from the persons eligibility, the property must also qualify for the tax deduction. The estate must be eligible and tangible and must have been purchased for business purposes (Department of the Treasury Internal Revenue Service, 2021).
There are limits on the total amount written off $1,050,000 and the total amount of equipment purchased $2,620,00. If a company spends $2,620,000 in sales, the deduction starts to phase out on a dollar-for-dollar basis, making it an accurate small and medium-sized business deduction (Section 179 Tax Deduction, 2021). If the company expects a high profit in the coming years, the investor will be better off deducting the machinerys expense over its useful life to lower potential taxable profits. Furthermore, since the deduction cannot exceed $500,000, the taxpayer can opt to subtract the payment throughout its useful life (Department of the Treasury Internal Revenue Service, 2021). Therefore, these reasons may serve as a foundation for not choosing Section 179 deduction if the property were eligible.
References
Department of the Treasury Internal Revenue Service. (2021). Publication 946. How To Depreciate Property (pp. 154). IRS. Web.
Section 179 Tax Deduction for 2020. (2021). Section179. Web.
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