The approaching New Year heralds major changes for small business tax deductions. Section 179, a much lauded federal government initiative, expires on December 31st, 2013. This specific section of the Stimulus Bill introduced in 2008 encourages small business owners to invest in their own companies. It provides the extra incentive of a full deduction during the same tax year.
Prior to this portion of legislation, small businesses depended upon depreciation to deduct from yearly tax filings; however, Section 179 affords entrepreneurs a full deduction of the purchase when filing tax information for that same year. This successfully encouraged small businesses to allocate a greater amount of money to purchase more equipment and resources. Considering that small business accounts for a majority of the workforce, Section 179 has, in effect, provided a surge in economic growth and recovery.
While there are many facets to Section 179, it offers a very enticing impetus for small business owners to purchase vehicles, particularly large vehicles and SUVs. The cost of these purchases can be deducted from your income tax if you choose, instead of mandating that the cost of the property be capitalized and depreciated.
Photo: Acura MDX
There are certain stipulations for the vehicles to qualify:
– To receive the highest possible deduction the gross vehicle weight must be between 6,000 and 14,000 lbs. Vehicles weighing less than 6,000 lbs can still qualify for deductions up to $11,000.
– Vehicles must be used primarily to conduct trade or business (greater than 50% of total mileage). However much you use your vehicle for business—between 50% and 100% will determine how much of a deduction you receive.
– The total deduction for passenger vehicles, trucks, and vans cannot exceed $11,160 for cars and $11,360 for trucks and vans, except ambulances, hearses, taxis, transport vans, and qualified non-personal use vehicles specifically modified for business.
– Vehicles that qualify for the full Section 179 deduction by their nature include:
- Heavy “non-SUV” vehicles with a cargo area at least six feet in interior length (not easily accessible from passenger area)
- Vehicles that seat nine-plus passengers behind the driver’s seat (e.g. shuttles/passenger vans)
- Vehicles with a fully-enclosed driver’s compartment/cargo area, no seating at all behind the driver’s seat, and no body section protruding more than 30 inches ahead of the leading edge of the windshield
– Vehicles qualify so long as they are new to you, i.e. they can be purchased new or pre-owned.
The total amount of deductions an individual can claim under Section 179 in a year is currently $500,000. In 2014, that maximum deduction drops to $25,000. Act now and don’t miss your opportunity to save.
For further information, we recommend visiting IRS.gov for the 2013 Instructions for Form 2106 (the form used to claim Section 179 deductions) and Section179.org for clarifications.
We highly recommend speaking to whoever does your taxes if you have more questions. If you have questions about the vehicles themselves, you can leave us a comment, email us at comments@leithmail.com, or contact us at Leith Acura Cary.