Taxes may be inevitable, but no one wants to pay more than necessary. With just one more month to go in 2016, it’s time to assess your tax situation – especially in regard to last-minute truck and equipment purchases. If you buy now, you may be able to take advantage of incentives that could significantly reduce your 2016 tax bill.
Acting now will also ensure you have the equipment in place to kick-start your 2017 projects. And you’ll pay winter prices. There are two programs to consider — Section 179 deductions and bonus depreciation.
IRS Section 179
Normally, equipment you purchase is depreciated over a certain number of years, depending on the type of asset and its useful life, as determined by the government’s Modified Accelerated Cost Recovery System. (MACRS is what your accountant uses to figure depreciation formulas.) Section 179 allows you to expense the full depreciable amount in the year you buy the equipment, rather than spreading it out.
You can use Section 179 and bonus depreciation separately or together, as long as the equipment you purchase qualifies. This can be a tremendous tax benefit, but it isn’t to your best advantage in every instance. You’ll want to pencil it out, in relation to your overall tax picture.
The program covers both new and used equipment. Up to $2 million in purchase price, you can deduct up to $500,000. Between $2 and $2.5 million in purchases, the deduction decreases dollar-for-dollar. It goes away altogether above $2.5 million. You can use this online calculator to get an idea what your deduction might be.
The $500,000 cap applies to tax year 2016, but it will ride with inflation in future years, in $10,000 increments. So it could be more or less in 2017 and beyond.
Congress has extended this tax program through 2019. It allows you to front-load depreciation – only on new equipment, though. For qualifying 2016 truck and equipment purchases, you can deduct 50% of the full depreciable amount, then the remaining half will be depreciated as usual following the MACRS schedule. The 50% amount applies to tax year 2017, too, then it goes down to 40% in 2018 and 30% on 2019. That’s something to keep in mind as you’re planning future equipment investments.
There are maximum amounts attached to this depreciation program, but it might be possible to carry over any excess into the next tax year.
The clock is ticking
We expect many of our customers will want to take advantage of these year-end tax incentives. We’re ready to help. But incentives apply only to equipment and trucks that are financed and in place by midnight, December 31, 2016. That means banks and financing companies will undoubtedly be very busy, so it’s crucial to get your deal(s) submitted as early as possible. Wait too long, and you could miss out.
Of course, only your CPA/financial advisor can give you advice specifically tailored for your business. We recommend you get with them right away to decide if you should take advantage of either of these tax-saving options. If so, let us know right away, so we can connect you with exactly the right equipment.