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By Ed Avis
Congress voted this week to extend the Section 179 tax deductions for 2014. This means businesses can expense equipment purchases up to $500,000 during calendar year 2014. What does this mean for reprographics shops? Six things:
1) Equipment you buy in 2014 can be immediately expensed on your 2014 taxes, up to $500,000. Previously the limit was $25,000. Obviously, this is an important deduction from your bottom line. For example, if you bought a $100,000 printer in 2014, you can now expense that entire amount on your taxes, rather than just $25,000 of it. If you show more than $100,000 profit for 2014 and you’re in the 30 percent tax bracket, this deduction gives you a savings of $30,000 in taxes (compared to just $7,500 when the deduction was $25,000).
2) The same goes for equipment your customers buy from you, so suddenly there is another incentive for them to make an equipment purchase from you before the end of 2014. And if they were thinking about a $25,000 purchase because of the previous level of the deduction, now they could be thinking about a much larger purchase.
3) The deduction also applies if you lease equipment, if your lease is properly structured. This means that you could take the big deduction from your taxes without the commensurate capital outlay – great for cash flow.
4) In most cases, the deduction also applies to used equipment, as long as it is “new” to you.
5) The key thing to remember is that this deduction, at the moment, applies only to 2014 purchases. It may not be renewed for 2015 – as of now it only works for 2014.
6) If you buy more than $2 million worth of equipment, your deduction drops. But there is 50 percent bonus depreciation for new equipment over $2 million. If you’re in this range of equipment purchases, get professional advice about the deductions and depreciation.
“With the reinstatement of the Section 179 limits of $500,000 and 50 percent bonus depreciation, it is a good business decision for many to acquire equipment immediately before the 12-31-14 cut-off,” says Camille Vieux, sales executive at IRgA sponsor Commercial Capital.