IRS Code Section 179 contains important ramifications for asset management and tax planning that can help smaller companies accelerate capital spending. Section 179 has been made more generous for 2013, thanks to the American Taxpayer Relief Act, an outgrowth of the so-called "fiscal cliff" negotiations.
What is Section 179?
This little jewel in the tax code allows small- and medium-sized businesses to expense capital purchases in the year of purchase rather than depreciating over three or five or whatever number of years. This applies to material goods used in your business, including:
- Business equipment and machines
- Trucks and other vehicles weighing over three tons
- Computers and canned software
- Office furniture and equipment
- Inventory tracking equipment
Wasp Barcode Technologies is a leading maker of inventory tracking equipment and software and we just love what they’ve done to Section 179.
Expensing vs. Depreciation
You can deduct the cost of paper clips in the year you buy them. Buy a paper mill, and you’ll have to deduct the cost of a ten-year period. Depreciation is the accounting procedure to partially expense a capital expenditure over a prescribed number of years. Immediate expensing is ideal, because the present value of depreciation deductions decrease with time. By the tenth year of depreciating a $10 million plant, that last $1 million dollars deduction is worth a lot less in today’s dollars. So anything that increases current expensing is good.
Bonus first-year Depreciation: Qualified property placed in service between 01/01/13 and 12/31/13 is eligible for first-year 50-percent bonus depreciation. In addition, the first-year passenger automobile limits have increased by $8,000.
New for 2013
Your business can deduct up to $500,000 in qualifying purchases for 2013. Anything in excess gets the old depreciation treatment. Capital purchases exceeding $2 million reduce your immediate deduction dollar for dollar. However, above the $2 million cap is a silver lining — for 2013, you can take a 50 percent Bonus Deduction on new capital equipment purchases above the threshold. If you can’t take advantage of the 50 percent Bonus Depreciation in 2013, you can carry it forward to later years.
In addition, the first-year passenger automobile limits have increased by $8,000.
By the way, these provisions have been extended retroactively back to 2012.
Resellers Take Note
While many of our customers buy Wasp Barcode merchandise for managing their own inventories, tracking assets, creating point-of-sale solutions, etc., we do a significant business with value-added resellers and solution providers. For these worthy folks, our equipment is their inventory, and as such does not qualify for Section 179 deduction.
Even without the Section 179 deduction, we think resellers have a great story to tell. First, their customers can take the deduction. But of even greater importance is that their customers’ investments of a few thousand dollars in advanced barcode technology can save tens of thousands of dollars in inventory losses, stock outs and many other costs. There is no need to guess where you inventory is deployed or spend a fortune on laborious physical counts. Shrinkage and security costs are contained.
So, whether or not you benefit directly from Section 179, we know you will profit from using Wasp. We invite you to contact us and let us prove it to you!