Take Advantage of IRS Section 179 Before the End of 2020

Reduce your 2020 taxes
Reduce your 2020 taxes

Take Advantage of IRS Section 179 Before the End of 2020

As 2020 draws to a close, businesses all over the world are taking the time to reflect on the turbulent year, are making any last-minute changes to their plans, and are deciding the basis of the coming year’s procedures.

One thing you should start considering if you haven’t before this point is taking advantage of the IRS Section 179 tax deductions. This law gives you an incredibly affordable opportunity to finance your equipment upgrades or any other renovations you may have been planning.

The deadline to benefit from this is fast approaching though and the sooner you understand Section 179, the sooner you can make the best possible long-term decision for your business.

IRS Section 179 Explained

In a nutshell, Section 179 of the IRS tax code is an incentive formulated by the US Government that is specifically designed to encourage small businesses to increase their spending. This spending could be in the form of upgrading existing equipment as an example or implementing a new industrial workflow through updated machinery.

Section 179 does this by deducting the full purchase price of qualifying equipment or software bought during the tax year. This would allow companies to deduct the full price from their gross income as this expense would be considered a tax write off.

Specifics You Need to Know

To take advantage of this, the equipment you’re looking to purchase has to be eligible, and said equipment has to be bought and put to use BEFORE midnight on December 31st, 2020. There are also spending caps in place, mainly a:

  • $1,040,000 deduction limit
  • $2,590,000 spending cap.

The equipment you’re financing has to fall in one of the following categories to be eligible for Section 179:

Eligible for Section 179

  • Hardware (machinery, robots, computers, etc.)
  • Furniture
  • Vehicles designed for commercial usage (shuttle vans, cargo vans, trailers, etc.)
  • Off the shelf software
  • Property that is not a part of the building’s structure
  • Certain non-residential building renovations (roofing, alarms, fire systems, etc.)

Unfortunately, you cannot at this point in time take advantage of Section 179 tax deductions if your planned equipment upgrade falls into the following categories:

Ineligible

  • Property (permanent buildings, structures, swimming pools, parking areas, etc.)
  • Property being used or upgraded outside the US
  • Property used for the purpose of furnishing lodging
  • Property inherited or taken as a gift
  • Any property that does not fall into the category of personal property

The Benefits for Your Business

As Section 179 was passed in the hopes of bolstering general economic activity, it’s no surprise that many businesses will find the law quite helpful. A problem that plagues companies, especially the ones that operate at a smaller scale, is finding the resources to upgrade or automate their production processes and software.

These upgrades are very rarely affordable which is why many businesses have to continue to use older, unreliable equipment to carry out their production in the hopes of keeping their overall spending and costs down. This law changes all this. The IRS Section 179 tax deductions help alleviate a lot of the burden business owners face when making these tough decisions. Potential upgrades that may have been in the pipeline for years, can finally become a reality.

Better equipment will allow businesses to produce more products at a better quality and a lower price. It might also allow them to try newer, more innovative production methods to give their consumers an incredible product that helps their bottom-line and develops brand loyalty. All these factors play a big part in achieving economies of scale; a goal most businesses are actively striving towards achieving.

Next Steps

Now that you know all about the IRS Section 179 tax deductions, it’s time to understand the next steps on what you have to do.

The most important thing is making sure your upgrade is eligible and then acknowledging the December 31st deadline we’ve outlined before. As the month is almost drawing to a close, time is short and you will have to act fast if you’re still interested in your business benefiting from this law for 2020.

To claim the Section 179 deduction, you have to specify this on Part 1 of Form 4562. Include a description of the property, its cost, and the overall amount of Section 179 you’re claiming on this asset on Line 6. A list might also be attached in case you need more room.

If you’re unwilling or unqualified to fill this out, then it’s probably a good idea to hire an accountant to do this for you.

In terms of gathering funds, you can choose any financing option for your equipment upgrades and the Section 179 deduction would comply with almost all of them. This includes private financing companies like Dimension Funding. Choosing to finance your industrial automation upgrade through private financing companies like Dimension Funding has a myriad of benefits that banks and other lenders simply can’t provide.

4 Tips to Get Your Business Ready for Year-End

Get your business ready for 2021
Get your business ready for 2021

4 Tips to Get Your Business Ready for Year-End

Business owners must be extra vigilant as the year ends for one simple reason: Being smart and planning carefully at this time can give you a huge head start on your competition and could make the difference between you succeeding in the new year or failing.

1. Plan for the Next Year

Prior Planning Prevents Poor Performance. The military swears by this idea and there’s no reason that businesses shouldn’t internalize this concept too. The better you plan, the lesser the chances of your strategies failing or not yielding positive results.

A great way to start this planning process is to look at the current year and analyze if the goals you set at the start of it have been met or not. If not, then why? Investigate and try to find cues on what you should have done better. The more you research and dig, the better you’ll understand your failures and successes.

Customer testimonials, financial reports, employee feedback, are all ways that can help you better discern your business operations and the next steps you need to take to improve on them. It’s important to be very honest and proactive here. Making a wrong call or miscalculating a strategic step could result in a catastrophically bad new year for you.

Use all this information to get your business organized and create new goals for the next year while updating and modifying existing ones.

2. Sort Out Your Accounts and Finances

While easily the least glamorous part of owning a business, finances are the lifeblood of your day-to-day operations. The end of the year is a great time to sort of the essential tasks every business owner has on their to do list. Whether you do these yourself or delegate to an accounting professional, it’s super important that you make certain statements a priority to better understand your business’s financial performance.

The following reports should be emphasized:

  • Profit and Loss Statement – P and L’s, also known as income statements, document your businesses’ revenues, expenses, and overall costs during a particular period of time; the end of year income statement would obviously consist of that entire year’s finances.
  • Cash Flow Statement – This useful analysis tool reveals how a business manages its funds. It includes information on how changes in the company’s assets and liabilities affect cash flow and cash equivalents.
  • Balance Sheet – An overview of a company’s assets and liabilities which includes any amounts owed to investors or lenders.

These reports must be the basis of most of your decision making and you should plan according to the positive or negative results they reveal.

3. File Your Taxes and Take Advantage of IRS Section 179

Just like sorting out your finances at the end of the year, taxes are another important, yet tedious task business owners have to do. No matter how annoying, filing taxes on time is important if you want to avoid late filing fees.

Besides just getting your tax documents in order, this is also a good time to finance your equipment upgrades by taking advantage of IRS Section 179 tax deduction. This law allows businesses the opportunity to deduct the cost of qualified equipment purchases during that tax year as a business expense.

Lower taxes lessen the burden of the upgrade allowing more businesses who might not be able to afford expensive equipment, the opportunity to update their processes. Some important things you should know about IRS Section 179:

  • There are spending caps ($1,04,000 deduction limit and a $2,590,000 spending limit), so it might not be a viable solution if your scale of production or operation is quite large. However, Bonus Depreciation is likely to take care of purchases over the Section 179 limits.
  • Only qualified equipment can take advantage of IRS Section 179. If your upgrades are related to renovating buildings or property, then you might not be able to take advantage of the tax deductions.
  • Your upgrade MUST be bought and put into action by midnight of December 31st, 2020.

The last point is particularly important as you have to act fast if you want tax free equipment upgrades for your business especially now that 2020 is drawing to a close.

4. Focus on Improving Employee Performance

Employees are the backbone of any good business and while analyzing your finances and tax impacts are important, your staff performance also requires some introspection. Talk to your staff and ask for their feedback on their grievances and the things they want to change or improve upon.

Likewise, take this time to give your own feedback to them on what they should do to improve their performance. This allows every team member to know exactly where they stand and what they need to work on in the coming year. A company that wants to constantly improve can never leave out their workforce as they are the ones who will be carrying your company name forward.

Keep everyone on the same page and you will avoid employment disputes and quarrels in the coming year. As a bonus, this is also a great time to plan some morale-boosting events like Christmas parties but due to the Coronavirus pandemic, this particular strategy should be postponed for 2021.

Conclusion

We hope these tips give you some ideas on what to implement or look into at the end of the 2020 business year. It’s not how you start but how you finish that impacts your longevity in this game, and with 2021 just around the corner, your business has a great chance of reaching the success you aspire towards.

 

How Investing in Software, Equipment and Tech Can Save Money on Your Business Taxes

Save on your Business Taxes by Investing in technology
Save on your Business Taxes by Investing in technology

How Investing in Software, Equipment and Tech Can Save Money on Your Business Taxes

In addition to the purchase of equipment and assets for your business, the purchase of software can be written off on your business taxes. One of the biggest write-offs comes from taking advantage of IRS Section 179. You can write off up to $1,040,000 under IRS Section 179 for equipment, software and tangible personal property with a spending cap of $2,590,000. Anything not covered by IRS Section 179 can be written off under Bonus Depreciation.

Another area for your tax accountant to explore are tax breaks under the CARES Act passed in March of 2020 to help businesses survive during the measures taken to get the pandemic under control.

What Is Section 179 of the Tax Code?

Section 179 of the IRS Tax Code is for small and mid-sized businesses that purchase equipment, which includes software, during the qualifying year. The deduction under Section 179 allows for the full amount paid or financed during the tax year to be taken. To claim this deduction, businesses need to fill out form 4562 Part 1 and attach the form to your standard business tax filing. The deduction is not automatic so ensuring you have the correct forms is vital to getting the tax credit you deserve.

The best part of Section 179 is that other technology you invest in this year qualifies for this deduction including:

  • Machinery and business equipment
  • Business vehicles and fleets
  • Computers
  • Retail software
  • Office furniture and equipment
  • Property
  • Improvements to commercial buildings such as upgraded security alarms, HVAC, roofs, or fire systems
  • Tangible personal property

What is tangible personal property?

Tangible personal property includes personal computers that you take between home and the office but that are used for business, your personal office equipment, and other property that you own personally but is used for business solely. The property also has to last more than one year.

Some specific items that cannot be deducted using Section 179 include:

  • Land
  • Inventory
  • Permanent structures attached to land such as fences, paved parking lots, swimming pools, courtyards, or driveways
  • Property being used outside of the U.S.
  • Intangible property such as patents, trademarks, and copyrights

Another great thing about the Section 179 Tax Deduction is that even used equipment, machinery, furniture, etc., that you purchase that year is considered a new purchase under the code. To make a claim on your 2020 taxes, the equipment or software must be purchased or financed, installed, and be used between January 1, 2020 and December 31, 2020.

Bonus Depreciation

If your purchase exceeds the IRS Section 179 spending cap of $2,590,000, you can still write off the remaining amount under Bonus Depreciation. The amount over the spending cap reduces the Section 179 depreciation amount dollar for dollar. However, the amount of the purchase not covered by Section 179 is still covered under Bonus Depreciation. Consult your tax professional to ensure that any purchase is covered by IRS Section 179 and/or Bonus Depreciation.

Other 2020 Tax Breaks Your Small Business Needs to Know

One of the biggest tax benefits of 2020 for small businesses comes from the CARES Act that was passed in March of 2020. This legislation allows businesses to delay paying the company responsible portion of payroll taxes that would normally be accrued between March 27th, 2020, and December 31st, 2020. The deferment doesn’t even have to be paid back all at once! Two payments are required — half on December 21st, 2021, and the other have one year later the same day. This tax deferment is only for businesses that did not get one of the SBA paycheck protection loans. However, businesses that do qualify will get two years to pay their 2020 payroll taxes.

Also included in the CARES Act for 2020 is an Employee Retention Tax Credit. This deduction allows your business to get a payroll tax credit if you are at least partially shut down by government order due to COVID-19, your quarterly sales revenue has dropped by at least half, and you have 100 or less full time employees. A wage credit up to $10,000 per employee can be claimed to keep paying your employees. If your business employs more than 100 people, the tax credit can be claimed for furloughed employees or employees who have a drastic reduction of hours. This tax credit is also not applicable for businesses that received a paycheck protection loan.

Alternative Motor Vehicle Credit

If you’re investing in a fleet of cars or business vehicles, not only can you use Section 179 deduction, but you may also qualify for the Alternative Motor Vehicle Credit if the vehicles you purchase use an alternative fuel source such as hydrogen fuel-cell technology. Although the credit doesn’t apply to electric or hybrid cars, you might also qualify for the Qualified Electric Vehicle Credit (Form 8834).

Qualified Research Expenses Credit / Increasing Research Activities Credit

Businesses that are tech, medical, or manufacturing related niches are often eligible for the Qualified Research Expenses Credit / Increasing Research Activities Credit. This credit, for small businesses only, is meant to encourage business owners to do their own domestic development and research of new products.

Some of the activities that qualify under this credit include:

  • Developing new products, formulas, or processes
  • Development of protypes and models
  • Applying for patents
  • Certifying
  • New technology development
  • New software development
  • Environmental testing
  • Building new or improving manufacturing facilities
  • Streamlining internal business processes

You’ll need form 6765 and Form 8974 for your 2020 business taxes. Consult your tax professional because many more businesses qualify for this deduction than actually take the deduction.

Summary

Business taxes can be challenging to understand, and with so many deductions and credits available, consulting with a tax professional is always the best option. While our list is inclusive of tax credits related to purchasing business software or new technology, there are many more breaks your company could be taking advantage of. Regardless of your previous tax years, 2020 is a great year to invest in your new software and technology for your business and take advantage of these amazing tax breaks while they are still available.

Why Financing your Business Equipment is your Best Move

Financing Equipment Benefits
Financing Equipment Benefits

Why Financing your Business Equipment is your Best Move

Business owners know that the tools and equipment they need to run efficiently can be one of the costliest expenses. Many business owners are already strapped when it comes to loan options because of their start-up loans or not having enough business capital or cash flow to qualify for traditional loans. This lack of funding options can often lead business owners to put off upgrades in their technology and equipment that would otherwise increase productivity and efficiency thus raising profits. Did you know that your options as a business owner are not limited to lines of credit through a bank? Owners need to consider the ways that equipment financing can benefit them when funded through private funding companies.

Benefits of Financing Equipment

Businesses need to be able to purchase equipment, upgrade their technology & software as new advances come out, and the need for other equipment arises. For businesses to remain competitive they need the tools to do so. However, some equipment such as specialized tools, construction equipment, medical equipment & technology, vehicles fleets, and computer technology can cost companies hundreds of thousands of dollars in upfront costs. If you are a small business owner, it is unlikely that you have this kind of cash on-hand or if you do, want to reduce your working capital, particularly during a recession.

You experience an increase in your working capital when you can free up part of your budget through equipment financing. You don’t have to worry about cashflow shortages after paying an exorbitant amount of money upfront for equipment purchases. Use your working capital for operating expenses and growing your business rather than financing your equipment purchases.

Bank Financing vs Financing Company

Electronic FinancingOne benefit that comes with equipment financing over bank financing the bank requires a “Blanket Lien” meaning that all of assets of the company are security for the financed equipment. With a financing company, the financing is unsecured with only the equipment as security.

Banks rarely cover soft costs such as transporting, installation and maintenance of equipment. Those expenses must be paid upfront. With a financing company, those soft costs can be included in the financing.

Banks often require a 20% down payment. Financing companies finance the entire amount including soft costs.

Banks prefer to loan money on a floating or variable rate tied to the Prime Rate. Financing offers a fixed monthly payment. If you finance your equipment purchase, you know exactly what you are going to pay, the monthly payment and for how long.

Financing Turns a Large Upfront Expense into a Monthly Payment

Along with freeing up working capital, another monetary benefit of equipment financing is being able to break the cost of the equipment down into smaller, more manageable fixed, monthly payments for a term up to the life of the equipment. You can treat your equipment loan just as you would any of your other monthly operating bills or invoices and cash in on the tax benefits!

Tax Benefits

Save Working CapitalThe tax benefits of financing your equipment purchases should also be something business owners take into consideration when deciding on financing equipment. When you make financing payments, you are paying on the interest in addition to the amount applied towards the purchase price of the equipment. The interest payment portion of your loan is tax deductible each year that you are paying on the loan.

Also, under IRS Section 179 you can write off the entire equipment purchase up to $1,040,000. Under IRS Section 179 there is a spending cap of $2,590,000. However, Bonus Depreciation is generally taken after the Section 179 Spending Cap is reached. If you finance the equipment purchase, you can write off the entire purchase in the year that your purchased / put the equipment into service but make payments for the term of the financing agreement (often over the life of the equipment).

How to Get Equipment Financing

Equipment financing is usually obtainable through private lenders that supply capital to businesses, entrepreneurs, and owner-operators. These lenders specialize in commercial financing and lease financing for any type of business equipment you might need. Some of these companies, such as Dimension Funding, finance 100% of the costs associated with new equipment purchases including the shipping, installation, and maintenance of the equipment. Business owners can also include training expenses in their funding requests to offset the payroll expense of training employees on how to effectively use the new equipment.

BulldozerApplying for these loans are easy and simple. You can apply for up to $250k without providing financial statements and if you need more than that, the paperwork process is streamlined for your convenience. When you apply online through Dimension Funding, you can get an answer in as little as a few hours!

What Types of Equipment Can Be Financed?

Equipment Financing Up to $250k without Financial StatementsJust because your business does not use heavy equipment like cranes or expensive tools, doesn’t mean that what you need to run your business isn’t qualified for equipment financing. There are many industries that benefit from this type of funding including:

  • Breweries
  • Construction & heavy equipment companies
  • IT/Technology based companies
  • WISPs & Internet Service Providers
  • Law Firms
  • Health Services
  • Medical Supply
  • Restaurants
  • Manufacturing
  • Industrial

Also included in your equipment financing can be the funds to deliver and install the equipment, provide long-term maintenance, and training your employees on how to use the new equipment—including software! At Dimension Funding even software programs that your company needs to operate such as payroll and accounting software, POS software, and more can all be financed just like your heavy equipment and technology.

The best way to figure out if your business and equipment needs are eligible for financing is to start the application process with Dimension Funding. One step financing approval is available to get you the answers you need right away.

Tax Breaks Your Business Needs to Take Advantage of Before the July 15th Deadline

Tax Benefits for Small & Medium-Sized Businesses
Tax Benefits for Small & Medium-Sized Businesses

Tax Breaks Your Business Needs to Take Advantage of Before the July 15th Deadline

The July 15th tax extension deadline is fast approaching. If you’re scrambling to get everything together for the filing deadline, you might overlook some of the most significant tax breaks possible for 2019. You might have an accountant or bookkeeper doing your small business taxes for you. However, you should still make sure they are following up on these fantastic 2019 tax breaks for small and medium businesses to make sure you get the most optimal tax filing possible.
  1. Rental Income: Do you have investments in properties that you rent? Many landlords don’t realize that in the fall of 2019 the IRS decided that rental properties qualify for the 20% deduction the IRS allows as qualified business income. Rental properties can now be treated like businesses for the Section 199A tax deduction!
  2. First-Year Depreciation on Property: Did you purchase property you are using for business purposes? A new office? A brick and mortar location? These investments can be claimed for a depreciation bonus in the first year of owning the property equal to 100% of the property price. A recent update to the Tax Cuts and Jobs Act, TCJA, has extended this tax credit through 2027 for any properties purchased. This tax cut can also be used on equipment, software, machinery, and more that you use for business. You can learn more about this specific deduction further down.
  3. Research and Development Tax Credits: Did you know that the Wall Street Journal reported that 95% of ELIGIBLE small to mid-sized businesses do not take advantage of the R&D credits they are entitled to?  R&D credits are available to many more companies than you might think.  Any company that designs, develops or improves products, processes, techniques, formulas, inventions or software may be eligible. In fact, if a company has invested time, money and resources toward the advancement and improvement of its products or processes, it may qualify. Identifying and claiming R&D credits is a process that not every CPA does, but there are companies that don’t compete with tax-preparers and specialize in making it simple and risk-free for small to mid-sized businesses to reclaim past credits and take advantage of future credits that are due.  There are billions of dollars available – You just have to have a company that knows how to document the credits…and then apply.

  4. Green Vehicles: Did you invest in a green vehicle, or maybe even an entire fleet for your business? There are tax credits available up to $7,500 for new electric vehicles that your business purchases, although there are qualifications based on size and battery capacity.
  5. Employee Healthcare: If your business has less than 25 employees working full time and you are providing health insurance for them, you may qualify for a small business tax break for healthcare up to 50% of your cost of coverage. To be eligible, business owners need to be paying half of the monthly premium under the Small Business Health Options Program.  There are employee qualifications as well, such as making less than $50,000 per year per employee on average, and each employee must be working 120 days of the year, at least. The smaller your business, the bigger your tax credit, so make sure your accountant looks into the healthcare credit even if you only have a handful of employees. If your employees have HSAs already, the amount eligible for them to put into their Health Savings Accounts has been increased to $7,000 for families and $3,500 for individuals. These tax-exempt savings also lower your FICA contributions.
  6. Pension Plans and 401k: Your employees have an excellent benefit for 2019 & 2020—The IRS raised the limit for employee contributions to retirement plans by $500. If you are over 50, the limit was increased to $6,500! This increase means your company’s FICA contributions should be lowered. There is also a Credit for Small Employer Pension Plan Startup Costs, so if you have never offered a pension plan to your employees, and you have less than 100 employees, now is the time! Up to $500 per year for the next three years can be credited back to you for your pension start-up costs.
  7. Start-Up Costs: The Federal Government offers new businesses a tax credit up to $5,000 for start-up costs. The qualified expenses for start-up costs can include advertising, traveling, purchases of equipment, time to investigate the market and write your business plan, and more!
  8. Self-Improvement: Yes, you can get a small business tax credit all for bettering yourself. The costs associated with continuing education to maintain a license or certificate, professional development, and more are all business expenses that can be deducted.
  9. Travel and Lodging: Another business expense that some business owners don’t realize they can deduct is the cost of their travel and lodging. Mileage deductions, car loan payments, the cost of conference tickets, meals, and cab rides can all be deducted when you are traveling on business. Even your car rental, airline tickets, hotel stays, and even entertainment can be claimed. Make sure to keep your receipts and a travel log detailing what business you were in town for and who you met.
  10. Home Office: Do you run your business from home or have a home-office specifically used for business? The IRS allows sole proprietors to deduce some of the cost of their home office. The simple deduction allows for a maximum deduction of $1,500 for offices that are smaller than 300 square feet, or $5 per square foot, whichever is less.
  11. Employed People Working from Home. One downside of the Tax Cuts and Job Acts was that it eliminated the federal tax deductions for employed people working from home who have home offices.
    There are seven state—Alabama, Arkansas, California, Hawaii, Minnesota, New York, and Pennsylvania, however, that chose to still allow this deduction for their state income taxes. Tax payers in these states who are not self-employed but still work from home are eligible to claim non employer reimbursed expenses such as computers, desks, and chairs for their home offices.

IRS Section 179 Tax Benefits

The one tax break listed above that we see accountants, bookkeepers, business owners, and even tax professionals sometimes miss out on is the tax credit for depreciation of new property. IRS Section 179 allows businesses to deduct up to one million dollars of the purchase price of new property such as equipment, machinery, and software for their business as long as they don’t purchase more than $2.5 million in total. Anything over $2,500,000 can be taken as “Bonus Depreciation.” This deduction applies to purchases that are financed as well. Even if you don’t pay for your equipment, software, or machinery up front, you can still deduct the entire agreed-upon purchase price the first year. The savings go beyond a simple tax credit, however. The amount you save in your small business tax break under Section 179 could equal more than you pay on the property in that first year. Many small and medium-sized business owners find themselves coming out ahead when they take advantage of this specific tax credit.

Tax Tips for Small and Medium Businesses

Whether you have owned your business for decades, or just started up this year, there are a few tax tips that you should review in addition to the deductions listed above. The most important piece of advice is to hire a tax professional to handle your business taxes. These professionals are up-to-date on the latest tax laws, deductions, and credits that could apply to your small business and should make sure you that take advantage of everything the federal government offers. However, since you are the one ultimately responsible for your taxes, you should ensure:
  • It would be best if you kept your taxes in mind all year round by keeping receipts, travel logs, and getting financial statements from your CPA or bookkeepers.
  • Don’t make assumptions about what tax breaks you may or may not qualify for. Hiring a tax professional is the best way to ensure you get the best outcome for your tax situation.
  • Expect to pay taxes. Before you owned a business, you might have been looking forward to your refund check every year. Businesses should always expect to owe and need to pay into taxes. One thing you can do to be prepared is to set aside at least 10% of your monthly profits into a savings account that you can use to pay your taxes when they come due.
  • Depreciation is based on the purchase price, not the amount paid. Even if you have only paid $1,000 towards your loan on software purchased last year, the deduction in appreciation you qualify for is based on the whole amount you have financed.
Don’t miss out on any of the valuable tax credits your small business could be taking advantage of this year. Contact your CPA or review your taxes if you haven’t already and ask them to make sure you are getting the most out of your tax preparation and the best outcome for your business before the July 15th filing dates