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2023 Guide to Section 179 Expensing



Overview

In 2023, Section 179 continues to offer substantial tax relief for businesses, enhancing the depreciation and expensing limits on specific assets. This pivotal section of the tax code allows businesses to optimize their tax strategies by fully deducting the cost of qualifying assets in the year of purchase.


Who Can Benefit?

Any business purchasing significant equipment, software, or other eligible fixed assets can benefit from Section 179. The provision is designed to encourage business investment and growth.

2023 Updates to Section 179 Expensing

  • Increased Expense Limits: Following the Tax Cuts and Jobs Act (TCJA) adjustments, the expense limit remains high at $1.08M, adjusted for inflation.

  • Expanded Asset Eligibility: In addition to traditional equipment and software, qualified improvement property and certain lodging furnishings are now eligible.

  • Purchase Limit Adjustments: The total purchase limit has been adjusted to $2.7M, reflecting inflationary changes.

Key Rules and Limitations

  • Vehicle Limitations: Specific caps exist on vehicle expensing, especially for those under 6,000 pounds.

  • Flexibility in Expense Claiming: Businesses can choose the extent of Section 179 expensing versus traditional depreciation, tailoring it to their tax situation.

  • Purchase Thresholds: Exceeding the $2.7M purchase threshold triggers a reduction in the expensing benefit.

Potential Downsides

  • Immediate vs. Future Benefits: While Section 179 offers immediate tax relief, it reduces future depreciation benefits, potentially impacting future profitability years.

  • Asset Recapture Risks: Selling an expensed asset may lead to tax liabilities in future years.

Benefits

Section 179 offers a significant upfront tax relief, allowing businesses to reinvest savings into growth and development initiatives.


Considerations

Businesses must weigh the immediate benefits against future depreciation potential and the risk of recapture taxes.


Conflicting Strategies

Bonus Depreciation remains a viable alternative or complementary strategy, depending on the business's specific tax situation.


Assumptions for 2023

  • Businesses will continue to invest in assets within the increased limits set by the TCJA.

  • All assets are purchased within the fiscal year.

Requirements for Claiming

  • Strict adherence to the eligibility criteria of Section 179.

  • Positive business and tax scenarios where Section 179 expensing would be beneficial.

Eligible Business Entities

  • Schedule C, E, F

  • Farm Rental

  • C and S Corporations

  • Partnerships


Conclusion

In 2023, Section 179 remains a crucial tool for businesses seeking tax efficiency through strategic asset purchases. While it offers immediate fiscal benefits, it requires careful consideration of future tax implications and asset recapture risks. Businesses should consult with tax professionals to fully leverage Section 179 in alignment with their long-term financial planning and tax strategies.


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