The end of the year is often a time for businesses to invest in themselves and take the accompanying tax deductions. It’s the last chance to decrease your 2019 taxes by doing a little holiday shopping for your business. Thanks to Section 179 and this year’s 100% bonus depreciation, buying a vehicle for the business is a great way to do it.
Section 179 of the tax code allows businesses to take depreciation expense that would normally be spread out over several years and claim it all at once in the year the purchase is put into use. This is very helpful when you’re investing in software, hardware, equipment, or vehicles, because their expected useful life would usually require years of depreciation.
For example, a car’s useful life is typically measured by the IRS at 5 years. That means the purchase amount would be split up and deducted each year for a 5 year period. But wouldn’t you rather take all that deduction right upfront when you purchase?
Section 179 makes that possible but there are limits for many types of property. In general, the limit for the deduction is $1,000,000, which is more than many companies ever plan to spend in a year. This includes business equipment, vehicles, and some types of building improvements (like HVAC or security systems).
For vehicles, however, the limits are lower. If you purchase a commercial vehicle like a delivery truck, you can use the full deduction. For a van or SUV over 6,000 lbs, the limit is $25,000. Passenger vehicles and trucks below 6,000 lbs are limited to $10,000.
Keep in mind that a vehicle deduction is based on business use. If you purchase a vehicle used for both business and personal, you’ll need to track mileage for business use and base your deduction on that percentage.
Now, you may be thinking, “$10,000 sounds like a lot less than I’m spending on a vehicle.” It’s true that the limits for passenger vehicles are smaller than most other qualifying purchases. Fortunately, bonus depreciation can also help. For passenger vehicles, the bonus depreciation can bring your deduction up to $18,000 in the first year.
Looking to buy a commercial vehicle like a delivery truck? You’re in luck. These limits won’t get in your way. You’ll be able to take full 100% depreciation on your purchase and maximize your tax savings.
Not in the market for a vehicle right now but still want to take advantage of section 179? It’s also a great time to upgrade your computers, replace aging equipment, buy that new software you’ve been looking at, or update the office furniture. These can all add up to a major savings on your tax bill.