DISCLAIMER: Accounting and Tax topics can be state, Federal and/or business specific. Speak with your accountant to see if your business qualifies for Section 179, bonus depreciation or other tax programs!
Section 179 is a section of the United States Tax Code that allows certain equipment (e.g. CNC Machines) to be expenses rather than depreciated, subject to various rules and limitations.
What does this mean (simple terms!):
- If you buy a Brand New Tormach or HAAS CNC Machine for your business, you would normally have to depreciate that piece of equipment over many years. Let’s say the machine cost $100,000. The IRS tables may dictate that your business depreciates that equipment over 5 years (talk to your accountant about this): that means you SPEND $100,000 in Year1, but you only get to take $20,000 (1/5th of the purchase price if it’s being depreciated over 5 years) as an expense that year! This is *not* good, as you used $100,000 of cash to buy a machine, but only get to take $20,000 of expense this year! You want to maximize the expense, as it reduces your net income which reduces your income tax!
- Section 179 is designed to incentivize businesses to buy equipment by allowing them, subject to limitations, to deduct most of the equipment purchase in the first year! So if you buy a machine for $100,000, you may be able to take the full $100,000 expense that year! As of late 2017, the IRS is allowing a business to take a Section 179 deduction even if it means the business has negative net income! This can be a powerful tool, especially if you have other sources of income (day job, spouse works, etc) as it can drastically (and legally!) reduce your income tax!