Take Advantage of 2020 Tax Incentives for New & Used Capital Equipment
The most significant overhaul to the U.S. tax code in more than 30 years went into effect on December 22, 2018. The Tax Cuts & Jobs Act incentivizes businesses to buy equipment and invest in themselves, with the end goal being to strengthen the overall economy. The law, H.R.1, provides meaningful reform by lowering business and individual tax rates.
The Section 179 Deduction, or $1,000,000 Write-off on new and used equipment purchases, was made indefinite, and beginning in 2019 it will be indexed each year for inflation. The 100% Bonus Depreciation is still in effect as currently written until 2022.
So, how do these tax incentives affect different types of businesses?
32% Flow-through Type Companies
For Sole Proprietorships, Partnerships or S-Corporations, the tax benefits break down as follows:
- Section 179 Deduction: This allows companies to deduct the amount spent on purchasing new or used equipment from their taxable income. The annual deduction limit is $1,000,000 for companies that purchase or lease up to $2,500,000 of equipment. The deduction is phased out dollar for dollar from $2,500,000 to $3,500,000 and does not apply to anything above that $3,500,0000 limit.
- Bonus Depreciation: After the Section 179 deduction limit has been reached, companies can take advantage of Bonus Depreciation, immediately deducting 100% of the cost of new or used equipment the year it is placed into service. This expires at the end of 2022.
For C-Corporations, the benefits of the Tax Cuts & Jobs Act break down a little bit differently:
- Section 179 Deduction: This works mostly the same as for a 32% flow-through company, allowing C-Corporations to deduct the amount spent on purchasing new or used equipment from their taxable income. The recent law changes for 2018 and beyond increasing the annual deduction limit to $1,000,000 for companies that purchase or lease up to $2,500,000 of equipment each year. Previously, it only allowed deductions on up to $2,000,000 in equipment purchases. The limit will be indexed for inflation starting in 2019. If your company exceeds the limit of $2,500,000 in equipment purchases in a year, you may still be able to benefit from this deduction by financing purchases with an operating lease.
- Bonus Depreciation: The Bonus Depreciation incentive allows businesses to immediately deduct 100% of the cost of eligible equipment the year it is placed into service. This was increased from 50% to 100% through 2022. This bonus depreciation is now also available for new and used equipment purchases.
There’s never been a better time to purchase a new CNC machine tool for your company! Take advantage of the tax incentives and talk to Absolute Machine Tools today about your CNC machine needs.