Investing in technology like LightWELD® laser welding and cleaning is an excellent way to improve productivity and stay competitive, even amid the welding labor shortage. But before committing to a purchase, it is crucial to understand the available tax deductions and incentives, which can often significantly reduce the effective cost of laser equipment.
Two powerful tools available to small and medium-size businesses are Section 179 and Bonus Depreciation*. These provisions allow you to recover the costs of income-producing property, offering significant tax savings. In this post, we will explore what Section 179 and Bonus Depreciation are, what equipment qualifies, and what considerations you must have in mind, as well as how much you can save when purchasing qualifying equipment.
What is Section 179?
Section 179 is a tax deduction that allows businesses to deduct the full purchase price of qualifying equipment (or software) purchased or financed during the tax year. Compared to previous incentives, which limited businesses to writing off equipment over time as it depreciated, Section 179 allows businesses to write off the entire purchase price of qualifying equipment immediately.
What Equipment Qualifies?
There are certain limitations and provisions that must be considered to take advantage of Section 179. Firstly, your business must be profitable, and the deduction cannot exceed the net income.
As for the equipment, it must meet the following conditions:
- You must be the owner of the equipment, even if it is subject to debt financing.
- The equipment can’t be purchased from relatives or organizations to which you have relations — it must come from an impartial seller.
- The equipment must be used to produce taxable income. Property used for personal activities does not qualify.
- The equipment must have a determinable useful life longer than a year.
- You must use the equipment in the same year it was purchased.
Products that qualify include farm equipment, office machinery, manufacturing equipment, as well as laser welding equipment.
Important Considerations & How It Works
Only the cost paid by cash applies. This means that a trade-in of old equipment reduces the amount that can be deducted. Costs include the price of the equipment, freight charges, and installation costs. Consider consulting a tax adviser to determine if sales taxes can be included in the cost basis, this may vary depending on how you file your tax returns.
The Section 179 deduction limit for 2024 is set at $1,220,000. This allows businesses to fully deduct the purchase price of all qualifying equipment, up to the $1,220,000 limit. Additionally, the total limit for equipment purchases is $3,050,000, after which the deduction begins to be limited.
If you put into service equipment exceeding $3,050,000 during the tax year, your Section 179 deduction will be reduced. For example, if you spent $3,100,000 on equipment ($50K above the limit), the maximum Section 179 deduction is reduced by $50K. In this example, the reduction results in a limit of $1,170,000 ($1,220,000 - $50,000 = $1,170,000).
The reduction continues to scale on a dollar-by-dollar basis. If you place $4,270,000 or more into service, you cannot benefit from Section 179.
How Much Can You Save?
Let’s take a $100,000 purchase, assuming a 37% tax bracket, as an example.
