If you’re looking to put money back to your bottom line this year, your business could save thousands of dollars on new and used equipment purchases. Take advantage of available tax incentives created by the government to encourage businesses to buy equipment and invest in themselves. There are similar tax advantage opportunities in Canada as well.
Let’s start with the U.S. Section 179 of the IRS Tax Code, which offers eligible businesses a great opportunity to maximize purchasing power. Most of the new and used (must be new to you) equipment your business will purchase or finance will qualify for the Section 179 deduction. Section 179 allows you to deduct the FULL PURCHASE PRICE of qualifying equipment in the year it was put into service. This creates a larger initial expense deduction than using a standard depreciation method, thus reducing the tax burden for the company. Keep in mind, Section 179 cannot result in a net loss.
Section 179 Highlights for 2022 Include:
- Maximum amount that can be deducted is $1,080,000, (a $30,000 increase from 2021).
- Maximum amount of equipment purchased (and take the full deduction) is $2.7 million.
allows for bonus depreciation (currently 100% expensing) on eligible equipment and property, thus allowing accelerated depreciation for a reduced tax burden, similar to the Section 179 deduction. A company can take both Section 179 and bonus depreciation allowances, but Section 179 must be applied first. Therefore, any qualified property purchased over the $1,080,000 limit may then be taken in bonus depreciation. So it’s great for businesses that spend more than the Section 179 spending limit. Bonus depreciation is scheduled to phase out over the next 7 years (see table below).
|PLACED IN SERVICE DATE||BONUS DEPRECIATION|
|September 28, 2017 to December 31, 2022||100%|
|January 1, 2023 to December 31, 2023||80%|
|January 1, 2024 to December 31, 2024||60%|
|January 1, 2025 to December 31, 2025||40%|
|January 1, 2026 to December 31, 2026||20%|
|January 1, 2027 and thereafter||0%|
Section 168(k) Bonus Depreciation Highlights for 2022 Include:
- Bonus depreciation remains at 100% of the cost of both new equipment and used equipment (must be new to you). The deduction applies to purchases made in 2021 and 2022 and will start to decrease each year until it hits 20% in 2026.
- Bonus depreciation is ideal for larger businesses who spend more than the $2.7 million purchase cap noted above.
- It’s also important to note that equipment must be used for business purposes more than 50% of the time to qualify for these deductions.
- Businesses with a net loss are still qualified to deduct the cost of new equipment and carry-forward the loss.
Let’s look at the tax savings introduced by bonus depreciation, along with Section 179.
|NEW/USED EQUIPMENT||TAX YEAR 2022|
|Section 179 Deduction||$1,080,000|
|Bonus Depreciation (100% of Depreciable Amount)||$420,000|
|Total First-Year Deduction||$1,500,000|
|Total First-Year Tax Savings (Section 179 and Bonus Depreciation)||$315,000|
|Tax Savings Using Section 179 Only||$1,080,000 x .21 = $226,800|
Before you take Section 179 and/or bonus depreciation deductions, consult with your tax or legal advisor.
In Canada, the Capital Cost Allowance allows businesses to immediately expense 100% of the cost of certain new machines that are purchased before 2028 — so this applies to 2022. Under new Accelerated Investment Incentive rules, Canadian businesses are also eligible for an enhanced tax depreciation write-off in 2022 of up to 3 times the amount that would normally apply. For example, if a business purchased equipment for $100,000 and utilized the machine that year, it would be eligible for a first year write off of $10,000 (10% of the capital cost of the equipment). Under the new rules, the business can now claim tax depreciation in the first year of $30,000 (3 times the original amount).
Now’s a great time to take advantage of higher first-year depreciation.
If you’re looking to finance or lease a new machine, check out our complete product lineup here in North America featuring a broad range of financial offers. To take advantage of Section 179 and bonus depreciation in the U.S. this year, your equipment must be purchased and put into service between Jan. 1, 2022, and midnight on Dec. 31, 2022.
If you have additional questions about the advantages of Section 179 and bonus deprecation, check out these FAQs or talk to your local tax advisor.
Disclaimer: U.S. and Canadian tax incentives are complicated. There are many limits, exclusions and special rules for different types of businesses in each country. The information in this article, and on this site, is not and should not be construed as tax or legal advice. Each business situation is different and tax regulations change frequently. We strongly recommend that you consult with your tax advisor regarding how these tax-saving opportunities apply in your situation.