Have you ever planned an exciting vacation? It wasn’t very simple, was it? You have to know when you will go, what you will do, and sometimes even what the weather will be like! And that’s not even getting into the nitty gritty of food costs and hotel availability that inevitably follow! Just like you have to plan ahead to take a nice vacation, you need to plan ahead to use Section 179 for a tax deduction. Today we will discuss things to consider when planning how your company can utilize Section 179.
While we are discussing the theme of Section 179 deductions in our blogs this month, we need to remind our readers that we are not tax advisors. The information we provide is for general discussion, and before making any decisions, please speak with your company’s CFO or other tax and accounting professionals. That being said, remember that current Section 179 laws allow you up to $2.62 million in deductions that you can write-off in 2021.
Why Plan Ahead?
As we’ve mentioned in our previous blog, Section 179 allows companies to take deductions of the full value of the property purchased for business purposes within the same business year. f you make the purchase this year, you can take it as a deduction on your 2021 taxes. While that doesn’t exactly eliminate the cost, it will make your burden much easier to bear. There are some limiting time factors however. Section 179 will only let you write off property that:
- was purchased during the tax year
- was put into service by midnight of 12/31 of the tax year
Unfortunately, the time to save is running out. Why? Because replacing equipment and software isn’t always fast.
The Limitations of Time
While it sounds like a great idea to wait until the end of the year to determine what money you have left over for IT, it may remove your eligibility for Section 179. A lot of companies wait until the very end of the year to buy equipment with surplus funds. This means your IT provider isn’t fielding just your call for new equipment within the next month, but also the requests of many other clients. If you weren’t the first one to call, you may have a long wait. Goodbye, Section 179 benefits!
But, surely your IT can expedite things for you, right? If you have good IT, they will do their best, but there is only so much time in a day to get things done. It takes time to order then prepare equipment and set it up onsite. If your IT is handling the needs of multiple clients, you’ll have to coordinate a time that will work for both of you. This can be especially difficult if you can’t afford to be away from your computer for extended periods of time while finishing end-of-year projects.
Don’t forget there are several major holidays near the end of the year! It reduces the number of available work days before the end of the tax year. This usually means that your IT has had to schedule farther out to work around the holidays. They may not have availability when you expect them to be. You may be able to convince someone to work a holiday for you, but most IT companies will charge hefty fees for the inconvenience. And no one wants to be away from their loved ones on a holiday just so they could set up a computer!
2021 has been a year of equipment shortages. What could normally be purchased and received within days or weeks can now take months to arrive. Unfortunately, there aren’t very many work-arounds. While you could go to a local store and pick up equipment yourself, but there are several reasons this is a bad idea:
- In-store equipment is generally meant for home use. This means that it will come with an operating system running a home license. If you work on a domain, the new computer won’t even be capable of connecting to it. You will have to pay extra to upgrade the license so you can even use it.
- Home-use computers may have different specs than your work devices do. If you buy a computer without comparing it to your needs, the new device may not be capable of the work. If your software requires advanced processing, a store-bought computer generally isn’t cut out for it. You would have to pay extra to get hardware upgrades – which may take time to arrive.
- Even if you buy the equipment yourself, if you need help setting it up then you are stuck waiting on your IT to be available to help. They may not be able to schedule in unexpected last minute appointments, especially near the end of the year.
Plan How to Take Advantage
Working on a budget throughout the year can help ensure you get what you need and can benefit from Section 179. IT tends to be one of the more under-utilized tools that companies have, which also means that it tends to have the last say on budget. Thinking ahead and planning how much money you will make available for IT needs can help you make it happen sooner, eliminating any time-concerns that could impact Tax eligibility.
We recommend being aware of your equipment age and functionality. Set a budget for replacing older equipment on a regularly scheduled basis. New equipment works better and will save you money on productivity. It is also less likely to break, saving you unexpected costs in breaking equipment. And don’t forget the nice tax write-off it will provide at the end of the year!
If you aren’t sure how to budget out your IT needs and take advantage of Section 179, reach out! Our team would be happy to discuss your needs and find something that works for your budget. Its never too late to start planning ahead! If you were too late to take advantage for 2021 taxes, its a great time to start planning for 2022!