Running a business can be a difficult endeavor for a variety of reasons, not the last of which is the financial investment required. The popular saying that you have to spend money if you want to make money is particularly true in the business world, and there is often a plethora of expensive technology that companies must make use of in order to stay ahead of the curve and offer their clients the best service possible. That doesn’t mean, however, that you necessarily need to pay all of those expenses in full.
What is the Section 179 deduction?
If you’re at all familiar with taxes in the United States, then you’re probably also familiar with the idea of claiming deductions. This is an expense that you can claim on your tax return in order to receive some kind of payout or write-off. Not everything is eligible to be deducted, of course, but there are probably more than you might know. Did you know, for example, that freelancers can often write off the cost of their insurance and health benefits when tax time comes around? That’s a huge relief for many people and really helps balance out the expense of running your own business.
Some of these deductions are geared more towards business owners or, in certain circumstances, employees, who invest a lot of money into technology for their business. The Section 179 deductions specifically was created to offer small businesses help by enabling them to claim a depreciation deduction for particular assets acquired within one year instead of depreciating them more slowly over longer periods of time. The benefit is that the deduction is available right away rather than something that is slowly doled out over the course of the item’s lifespan.
What qualifies for a Section 179 deduction?
While not everything you purchase for your business is deductible, quite a bit of it is. This includes qualified property that is depreciable and tangible, including land, vehicles, and buildings. The property in question must have been purchased and entered into service the year that you claim the deduction, which means that you can’t necessarily just buy a particular property and let it sit abandoned while still claiming the deduction. The property must be actively used for your business in order to qualify.
One of the most popular items to claim under a Section 179 deduction is the computer. This makes sense, too, when you think about just how much work requires a computer to be completed. From filling out paperwork to scheduling shipments and reaching out to customers, computers are vital in many of today’s businesses. If you have purchased a computer for use in your business, you might be able to deduct the cost of it when you file your tax return.
Are all computers eligible?
The computers that you deduct must be used for your business. You can’t purchase a laptop solely for personal use and then claim its entire cost on your tax return, in other words, as a Section 179 deduction. That doesn’t mean that you have no options. If you use the computer for both business and personal use, then you have to figure out what percentage of the time that you use it for your business. If it is more than 50% of the time, then you can still claim it on your taxes. The amount that you can claim as a deduction on your tax return, then, is directly related to how much you use the computer for business reasons. Let’s say that the computer cost $1,000 and 75% of the time you spend using it, you are using it for work. You can deduct around $750 of that $1,000 total cost.
Do employee computers count?
If you can deduct the cost of your own computer on your taxes, can you do the same for computers purchased for your employee? The answer is yes, you can. If you purchase a computer for your employee to use at work, you can typically follow the same guidelines listed above to deduct its cost on your tax return. If your employee purchased the computer, you can reimburse them and then claim the computer as a Section 179 deduction.
Computers Used for Business Less than 50% of the Time
We mentioned above that computers used for both personal and business use can be claimed under a Section 179 deduction as long as it is used at least 51% of the time for business. If it is used less than 51% of time for your business, then you can’t claim it under Section 179. You can, however, claim it under normal depreciation deductions. This means that you’ll need to deduct the cost of the computer over the course of several years. Note that the amount eligible for depreciation follows similar rules to those used when determining how much to claim under Section 179. If you use the computer 30% of the time for work and it cost $1,000, then you can depreciate $400 of that over the course of several years.