Two Cents - Insights Brought to you by Vectra Bank

Every business depends on equipment to some degree. While it's clear that manufacturing companies have such needs, even service-providing firms need equipment like computer hardware to power their operations. Yet there are costs associated with equipment, like maintenance, repairs and replacement— not to mention the upfront investment required. Capital expenditures related to equipment purchasing can be a drain if not planned for correctly.

Fortunately, the U.S. tax code offers a valuable deduction for businesses to take advantage of when financing equipment leasing or buying. The Section 179 deduction can be used for business cars, office furniture, heavy duty machinery and software, making it a versatile incentive for equipment leasing. Here are three ways business can consider applying the Section 179 deduction in equipment leasing.

What is Section 179?

This deduction allows businesses to write off the entire cost of an equipment lease in the tax year the asset is put into service.

1. Finance or lease equipment upgrades

First, a primer on Section 179. This deduction allows businesses to write off the entire cost of an equipment lease in the tax year the asset is put into service. Thanks to recent tax reforms that increased the maximum deduction, business owners can now deduct $1 million in qualified purchases, up from a limit of $510,000. That's a lot of bandwidth business have to work with in improving equipment assets or investing in new systems to enhance operations. The Section 179 deduction is powerful leverage, along with bonus depreciation, that every business needs to consider. Use cases include:

Productivity is hampered by equipment that is aged or constantly in need of maintenance (which costs businesses in both real dollars and downtime). If such equipment problems plague a company, it can investigate replacing various equipment assets using the Section 179 deduction. This makes sense not only for industrial businesses, but also in white collar environments. Just as an auto dealership can benefit from new service equipment, an IT solutions provider can improve delivery and experience with better networking and server equipment. 

2. Purchase new office furniture

Sometimes a physical refresh of the office can have positive effects, for employees and customers alike. As it so happens, office equipment purchases are qualified under the Section 179 deduction, which provides businesses in need of a makeover with an incentive to pursue one. For example, purchasing ergonomic furniture for employees may not only increase comfort, but also productivity . A redone waiting room or reception area can also improve the impression customers get from your business.

3. Install a new security system

In addition to raising the Section 179 limit, recent tax reforms also approved new applications of the deductions. Now, business owners can deduct the costs of nonstructural building improvements like roofing, HVAC units or new fire protection measures. Alarm and security systems are also covered under the expansion, a big opportunity for companies to either install new defenses, or build upon an existing security framework.

The Section 179 deduction is more useful now than ever, and business owners of all stripes should investigate how to use it in improving their operations. Financing equipment purchases or making other leasing arrangements can open up big tax savings, and working with a bank to secure these plans is best practice for any organization. For more information or help, contact Vectra Bank today.

To learn more about equipment leasing; please contact your local Vectra Bank or complete the short form below and we'll reach out to you!

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