Oct
16
Business Tax Deductions 2017
Best Business Tax Deductibles For Business Owners Before Trumps Tax Proposal!
What is the difference between using purchased and leased equipment for a small business? Well, when you lease equipment, you have the chance to lease when you need it only. When you buy, it is yours for keeps. But then comes in the little delicacy about saving money on tax business deductibles, especially the much lauded Trump business tax deductibles for small businesses.
Question on many people’s mind is, if you lease equipment, do you enjoy the accelerated depreciation business tax deductibles that small businesses who buy their equipment enjoy?
The answer is yes. You do, if the equipment that you have leased qualifies. The equipment that you are using must be placed into use within this financial year. Just as it in the purchase of the equipment, the whole lease amount that you pay for the equipment can be deductible.
This is a very good deal indeed since the amount you pay in taxes could actually end up being more than the money you pay for the entire lease. If you lease and claim section 179, you could end up saving a lot of money, which you can use for other business operations.
As of the current plan, small business owners should love the Trump tax plan because it is going to favor them in a great way. However, is this true? That is what we are going to find out in this article. President Trump has said that his intention is to lower the taxes for small businesses.
Taxes are the chief concern for small business owners, many people wish that there can be reforms to streamline that. Will the Trump reforms be beneficial for all small businesses?
We would say yes, considering that the limit of the money spent is capped at $2,000,000, and this is the range within which all small businesses fall. That culls out the big businesses.
With this in mind, consider just how much money a business that is just starting up could save if it gets to deduct the whole purchase or lease amount of its equipment from the tax returns if the equipment was bought or leased in 2017.
Of more interest is the information that small businesses can now lease equipment and software that they need for their day-to-day operations and then they can benefit from the accelerated depreciation tax breaks.
Tax breaks for small business in Section 179
Research shows that many small business owners do not know how much tax they pay. But with the new tax breaks under 179 business tax deductibles, every businessman is interested to know what the future holds for them.
179 is a tax code that was drafted for small businesses to help them save money by deducting the buying price of the equipment that they lease, buy or finance but only up to given limits. This means not only equipment in terms of hardware, but in things like software as well. If you have software that you have leased from a vendor and you use it in your business, most likely it qualifies for a tax break.
As you can see from the above paragraph, the tax breaks are advanced to small businesses that lease or buy equipment. By doing simple math, it would seem that a business that leases equipment saves much more than the one that buys the equipment. How do you get your tax break? Just fill a special Internal Revenue Service form for that when you lease or buy your equipment for business.
Rather than wait to deduct the depreciated value of any leased or purchased equipment every year, you are now allowed to deduct the whole lease amount of the equipment at once. This is a great initiative as it increases the bottom line for your business a great deal.
The reason why it is referred to as accelerated depreciation is that you do not have to wait for five or more years as it was before 2016.
When can you deduct your accelerated depreciation?
You can deduct this in the tax year that you buy or lease the equipment. That means that if you buy a state of the art copier for your business in 2018, you can deduct its purchase price as you file your returns for the year 2018.
Buy more equipment in a short time
Rather than write off just a small amount of the depreciation of your equipment every year for, say 10 years, how about if you wrote off the whole purchase of lease price in the first year? Then you can save a good lump sum of money on taxes and you can use it to purchase more equipment for your business.
You can also use that money to boost the capital or operational needs for your small business. Note that this tax deduction under 179 2017 allows you to do in one year what you would have done in a number of years.
Limit for deduction
As of 2017, the limit of the amount that you can deduct for all leased property is $500,000. At the same time, you have to make sure that your capital purchases do not exceed $2 million. If they do, then you will lose $1 for every $1 that you have spent after $2 million.
In simple math, let us say that you spent $2.2 million on your capital expenses in 2017. Your business tax deductible limit of $500,000 will have to go less $1 for every dollar that you have spent above $2 million. And you have spent $200,000. Thus, you can only deduct $300,000 because of the $200,000 that was above the limit.
When you lease multiple properties…
If you buy different types of business property, you are allowed to distribute the deduction anyway that you like, as long as it does not exceed the limit.
For example, if a home improvement company owner buys certain machinery at $500,000, and then buys 5 air compressors and welding machines for his workshop all totaling to $150,000, he could handle the 179 deduction in a few possible ways.
If he deducts the $500,000 under 179, he will remain with $150,000 to deduct, but with the first deduction, he has reached the limit. So he can decide to use the MACRS – modified accelerated cost recovery system to depreciate the remaining $150,000.
At the same time, he can deduct the full $150,000 for the air compressors and welding machines and $350,000 of the first property. He can then depreciate the remaining $150,000 using the MACRS.
Complicated? Not really!
So basically, how much money can you save in your small business?
This depends on a few things. Your tax bracket is one, the total amount you pay for the equipment that you lease or buy and the income that you get from your business. One thing you can be sure of is that you will save good money.
Why you should lease equipment
Most small businesses prefer to lease business equipment so that they can only lease when they need it. This means the whole tax burden is on the leasing company. However, because the leasing company enjoys lower taxes, the same lower cost of doing business is passed on to the small business leasing the equipment.
Lease equipment without worrying about the mid-quarter convention
Unlike buying where if a company buys more than 40 percent of its property in the fourth quarter in which case it is required to recalculate the depreciation cost with the tables for mid-quarter convention, the small business leasing equipment is exempted from worrying about the mid-quarter convention. This means you can lease equipment when your needs arise, even in the fourth quarter. This is an option that companies buying equipment try to avoid.
Here are some of the deductions for small businesses
If you lease a vehicle that you are going to use exclusively for your business, you can deduct the whole amount. If you have a vehicle that you use for business and personal purposes, you can deduct its business use.
Machinery for construction, handyman, building and renovations are business tax deductibles and so is machinery attached to a business building like counters for grocery stores, refrigerators, gas storage tanks at filling stations, gas pumps, etc.
Computer software for business like QuickBooks
If you received some property as an inheritance and you use it for business, which will not qualify for business tax deductibles.