It’s that time of year when everyone is beginning to think about taxes. General and specialized tax forms, employee benefits forms, income statements, expenses and deductions – you name it and manufacturers are up to their eyeballs in tax-related documents.
But manufacturers don’t have to agonize over the entire process: There are a few forms that could actually be exciting to fill out. For those business owners considering an investment in machinery and software, filling out a general business expense form could add up to $1 million in tax deductions.
Specifically, manufacturers should look into Section 179 of the tax code. It can serve as a smart tool to to get a leg up on the competition while bringing in new equipment.
The Rundown
Section 179 is a part of the tax code designed to help small and large businesses purchase machinery and software. It allows companies to deduct the full amount of equipment that is leased, financed or purchased outright up to $1 million. It’s the government’s way of saying, “invest in your business!” So, listen to Uncle Sam and treat yourself.
Some of the most important aspects of the code of which to be aware include:
- Section 179’s deduction limit for 2018 is capped at $1 million thanks to the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act), which was passed by the House and Senate and signed into law on Dec. 18, 2015.
- Section 179 can greatly help your bottom line. By deducting the full cost, you lower the amount you pay for equipment and software substantially while also benefiting from the equipment purchased. It’s a win-win.
- Section 179 is simple to use. All you need to do is buy the equipment for your business and fill out this form. That’s it.
For an example of how it works, consider a $25,000 investment in capital equipment. With Section 179, and assuming your business is in a 35 percent tax bracket (the common U.S. corporate tax rate), business cost savings are $8,750, effectively reducing the equipment cost to $16,250. To see how that plays out for your business, calculate your cost savings here.
More details
A few other things to keep in mind: Section 179 enhancements typically expire at the end of the year. Also, over the past few years, the various stimulus acts have included special provisions for Section 179 and bonus depreciation.
The capital investments typically approved under Section 179 deduction include:
- Machinery
- Software
- Business vehicles
- Computers
- Office furniture and equipment
More often than not, those types of investments can be beneficial to business owners that answer affirmative to the following questions:
- Do you need to up your manufacturing productivity?
- Do you need to reduce scrap waste?
- Are you facing any problems related to machinery throughput?
- Are you having difficulties keeping up with orders or shipping products on time?
- Are your labor costs too high?
- Are you using outdated methods such as tape measures and manual stop gauges and clamps?
- Are you having a tough time training new employees?
- Are you facing any problems related to quality control?
- Do you struggle to meet just-in-time or build-to-order demands?
- Are your competitors pricing you out?
For business owners that answered yes to any of the above, specifically those with sawing operations, investing in TigerStop equipment under Section 179 can help. As an example, a TigerTurbo or HeavyDuty 2 with touchscreen software can increase productivity and yield and both are applicable under the tax incentive as deductions.
Business owners that take advantage can get more product out the door on time while doing so at a reduced cost. As an added bonus, machine setup time shrinks while confidence in part accuracy grows, equating to reductions in labor costs and scrap waste expenditures.
