FOUR WAYS THE TCJA CAN SAVE YOU MONEY ON BUSINESS SOFTWARE

Save money on your taxes with the TCJA

FOUR WAYS THE TCJA CAN SAVE YOU MONEY ON BUSINESS SOFTWARE

Save money on your taxes with the TCJA

By now you’ve probably heard about the Tax Cuts and Jobs Act, President Trump’s major corporate tax bill. Known commonly as the TCJA, this law has already had far-reaching effects around the nation. But nowhere has its impact been felt more strongly than in the business sector. In fact, many industries will experience double-digit reductions in their tax liabilities under this new law (source: Ernst & Young).

If you’re wondering how the TCJA can help serve your company’s bottom line, you might find that major savings can come from an unexpected place—software that you buy and use to run your business. The TCJA has expanded companies’ ability to deduct the costs of buying, renting, and financing software more than ever before.

For more details about how much you can claim in deductions for business equipment and software, see the [first article in our series.] For now, here are four steps you can use to take advantage of software deductions for your business:

  1. Find out which software is eligible for deductions. The first thing you’ll want to do is learn exactly which types of software do and do not qualify for deductions under the TCJA. There is a specific list of parameters set forward by the IRS that determine eligibility.
    • The software has to be used by your business for the purpose of producing revenue, either directly or indirectly.
    • The software must have a lifespan of ‘usefulness’ that can be clearly determined (This essentially means that the effectiveness of the software for your business must be clear.)
    • The software must be expected to be functional for at least one year or more.
    • The software can’t be totally custom to your business—it must be available to the general public at large for purchase and not heavily modified for your company’s use.
    • The software can’t be purchased on an exclusive license. That means it’s not only your software, but can be used by others with their own licenses.
      This might seem like a lot of strict parameters, but the good news is that most software qualifies under all of these stipulations. As long as software is available to the public and used by your business for a clear income-generating purpose, you’ll generally qualify for the deduction.
  2. Learn how section 179 works and what it means. We discussed Section 179 in the [first post of this series]. It’s the section of IRS tax code that applies specifically to which equipment and software purchases can be deducted and for how much.
    Under the Tax Cuts and Jobs Act, the deduction limit for 2019 has increased to $1,000,000 with a spending cap on equipment purchases set at $2,500,000. You can also temporarily deduct 100% of depreciation costs for 2019, though this number will decrease in the coming years.
  3. Consider financing your software purchases. The TCJA’s new rules allow businesses to deduct the full cost of equipment and software purchases made by a business in the year those purchases are made. Amazingly, that also applies to financed purchases.
    What does that mean for you and your business? It means that financing software can actually increase your cash for the fiscal year. If you were to finance $100,000 in software in 2019, but only make $5,000 in payments over the course of the year, you’d still be able to claim a deduction of $100,000, resulting in savings of tens of thousands of dollars.
  4. Ensure your software purchases qualify. If you’re planning on taking advantage of the tax benefits of financing software for 2019, it’s important to make sure your purchases qualify. The IRS treats software much in the same way it treats all business equipment purchases. That means that to qualify, the software must be purchased and put into use in the same year that it’s being claimed.
    The software must also be genuinely new to your company, and it can’t have been bought from an entity that has any direct connection to your own.
    Software is an essential aspect of nearly every modern business and industry. And now, thanks to the Tax Cuts and Jobs Act, buying or financing computer software is a smart financial move in its own right. If your business is in need of vital software, there’s never been a better time.

If you’d like to learn more about financing software for your business, contact Dimension Funding today.

Four Steps to Maximize Working Capital Deductions Under the TCJA

Maximize Working Capital Deductions Under the TCJA

Four Steps to Maximize Working Capital Deductions Under the TCJA

Maximize Working Capital Deductions Under the TCJA

As you know, working capital is what’s left of your business funds after factoring in income and costs through the fiscal year—and it can determine whether your business struggles or thrives. That’s why many companies turn to short-term working capital loans when they temporarily need to extend their working capital.

But many businesses fail to take advantage of major tax deductions when it comes to the short-term working capital loans they receive. Why? Because they don’t know that recent bills like the Tax Cuts and Jobs Act (TCJA) make it easier than ever to claim deductions on these loans. That makes short-term working capital loans more financially viable and accessible than ever.

Let’s look at four ways you can take advantage of deductions on your working capital business loan:

  1. Recognize what qualifies as working capital. The good news is that interest paid on nearly any type of business debt can be deducted under the Tax Cuts and Jobs Act and other tax laws. That includes short-term bank loans, other bank loans, lines of credit, real estate mortgages, credit cards or even car loans used for business purposes. Even a personal loan that’s used to cover business expenses can be tax deductible. That also goes for business loans where personal property is used as collateral.
    You must be the party legally responsible for the repayment of that debt for it to qualify. You’ll also need paperwork showing the debt transaction—a UCC-1 statement provided by your bank or creditor is the most effective. Similarly, you must be able to show the IRS that you and your creditor are taking steps to repay the debt. This includes proof of payments and proof of those deposits provided by the lender.
  2. Understand which parts of debt you can deduct. It’s important to remember that only interest on your business debts can be claimed. The principal repayment value of the loan can’t be deducted, since this isn’t considered income earned by your business.
    You also can’t claim a deduction on loan interest until the borrowed money has been put to use. That means it must be spent for a purpose relating to your business, not just kept in the bank. Loaned monies deposited into a bank are considered an investment and thus aren’t eligible for loan interest deductions. They may be eligible for deduction as an investment expense—but you should talk to an expert to see if you qualify under those IRS regulations.
  3. Accurately deduct loans used for personal and business use. Many businesses don’t realize that even interest on personal loans can be deducted as long as some portion of that loan was used for business purposes. You’ll simply need to determine and clearly show which portion of the loan was used for business expenses, and then only deduct that percentage of interest in your tax filing. The same applies for business-centered loans that are partially used for personal reasons.
    For example, let’s say you took out a working capital loan and used it to purchase some equipment. Let’s also say that you use that equipment for personal use around 15% of the time. You’ll be able to deduct 85% of the interest on that purchase, since that’s the amount used for business reasons.
  4. Avoid non-deductible loan expenses. Certain types of debt aren’t eligible for tax deductible interest. These include interest on large loans made off of life insurance policies for employees or owners, as well as interest on loans used to pay taxes or penalties that are owed or overdo. (C-corps are exempt from this rule, as they can claim deductions on tax debt loans.)

If you can learn the best ways to take advantage of business loan payment deductions through tax laws like the TCJA, you’ll be able to save money for your business and ensure that working capital is always available to get you where you’re going. These four steps will put you on the right track to increasing your deductions and decreasing your liability this tax season.

If you’d like to learn more about financing software for your business, contact Dimension Funding today.

FIVE STEPS TO SAVE THOUSANDS ON EQUIPMENT WITH THE TCJA

Save money with the TCJA

FIVE STEPS TO SAVE THOUSANDS ON EQUIPMENT WITH THE TCJA

Save money with the TCJA

In 2017, President Trump signed into law the Tax Cuts and Jobs Act— a sweeping new tax law with far-reaching effects for businesses of all sizes (source: IRS). While pundits will debate its benefits for the nation, what can’t be denied is that it brings huge value to business owners and their bottom lines. Of the $1.5 trillion in lowered tax liability thanks to the TCJA, $950 billion of that number will go to the business sector (source: Ernst & Young).

One of the most powerful impacts of the TCJA is the way it makes Section 179 tax regulations and bonus depreciation work for businesses. The idea of delving into tax law might not thrill you, but if you’re a business owner who’d like to save thousands or even hundreds of thousands on expenses—it should. It’s not as complex as it seems, and the new changes in the TCJA could transform the way you manage equipment costs and other business costs throughout the year.

Steps to Make TCJA Work for You

Here are some steps you can take to make the TCJA changes work for you:

  1. Take time to understand Section 179. Section 179 outlines how businesses can write off the expenses of qualifying equipment in their annual tax filings. The problem used to be that businesses could only write off amounts based on the depreciation of their equipment. If you purchased or financed equipment for $100,000, you might only be able to write-off around $10,000 per year in depreciation.
    With the introduction of the Tax Cuts and Jobs Act, you can now write off the entire cost of most equipment purchased and used during the year—up to as much as $1,000,000 for 2019. The best part is that this write-off even applies to equipment that you lease or finance. We’ll cover that more later, but for now let’s take a look at the types of equipment that qualify under Section 179.
  2. Learn the types of equipment you can expense. The Tax Cuts and Jobs Act not only increased the total cost you can deduct in equipment expenses, it also expanded the types of business equipment whose costs you can deduct (source: Section179.org). If you purchase or finance and put into use any of the following equipment during the calendar year, it can be claimed on that year’s taxes:
    1. Equipment purchased for use by your business, including machines and other physical equipment
    2. Vehicles with a gross vehicle weight (GVW) greater than 6,000 pounds used for your business
    3. Computers
    4. Office equipment and office furniture
    5. Software that has been purchased from a third-party and hasn’t been custom coded for your business
    6. Qualifying equipment that’s used partly for business and partly for personal use; deduction is based on percentage of business use versus personal use
    7. Equipment and property that are attached to your business’ physical building, including large manufacturing machinery or other equipment; structural elements of the building don’t qualify
    8. Non-structural improvements to your existing commercial building, including HVAC or roofing and security systems
      As you can see, a large majority of the equipment you might purchase for your business qualifies for the TCJA’s raised deduction limits. So do your research to ensure that you claim deductions on equipment everywhere you can.
  3. Harness the bonus depreciation increase to 100%. Under the TCJA, bonus depreciation has increased to 100% for 2019. That means that even after you’ve used your Section 179 deduction to lower the purchase price of new equipment, you can take an additional bonus depreciation deduction of 100% of what remains. This 100% bonus depreciation isn’t permanent and will likely be lowered in 2023.
  4. Finance business equipment to boost your bottom line. With the increased power of Section 179 and bonus depreciation thanks to the Tax Cuts and Jobs Act, choosing to lease or finance equipment in 2019 could be more profitable than you can imagine. Think of it this way—you can deduct the full purchase cost of equipment without paying the full purchase price for that equipment. For example, let’s say you finance $50,000 worth of machinery beginning in November of 2019, with monthly payments of $500. By the end of 2019, you’ll have only spent $1,000 on your equipment, but will be able to deduct tens of thousands of dollars—the full price it will cost to finance that equipment.
  5. Qualify and save. Besides falling under one of the categories listed in the Types of Equipment You Can Expense section above, there are a few other conditions your equipment will need to qualify for these deductions and savings. The equipment must be bought and put into use in the year its claimed, and the used equipment must also be new to your business. Similarly, you can’t lease or purchase it from an entity with direct connection to your business.

Beyond these conditions, the equipment can be bought, rented, or financed and still qualify for complete Section 179 and TCJA deductions and bonus appreciations.

Financing equipment for your business rather than paying cash has always been a great way to maintain cash flow for your business. But the TCJA act has radically boosted those benefits by letting you deduct the full cost of that financed equipment during the tax year it was put into use.