Start thinking about how your company can best promote beneficial tax deductions to assist your customers in their business planning and equipment purchases. With your guidance, customers can turn their material expenditures into long-term investments for their businesses – with potential tax benefits as an additional incentive.
Financing equipment or software using an Equipment Finance Agreement (EFA), Software Finance Agreement (SFA) or a $1 Buyout agreement makes your customers potentially eligible for not one, but two tax deductions. The Section 179 deduction and the Bonus Depreciation deduction provide your customers ways to reduce their taxes while acquiring earning assets. Those tax deductions, coupled with a consistent monthly payment, may allow them to lower the overall cost and improve their return on investment.
Educating your customers on potential savings is a win-win. These deductions encourage businesses to make purchases that benefit and grow their business through equipment accumulation and give you a chance to show your customers how you help them beyond a simple transaction.
Section 179 enables businesses to deduct the full price of their equipment purchase – up to $1.16 million during the current tax year. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,890,000. Typically, businesses would take 4-6 years to depreciate equipment.
Small businesses looking to purchase or refresh their equipment may benefit greatly from this deduction – especially if they’re looking for tax relief for their current year.
Bonus Depreciation (Section 168) is just what it sounds like: a bonus tax break for your business. This applies to qualified taxable assets within the first year of purchase if the qualified equipment is used in 50% of business operations. The deduction has no dollar limit and is being phased out over the next few years. The rates by year are as followed:
- 2023 bonus rate = 80%.
- 2024 bonus rate = 60%.
- 2025 bonus rate = 40%.
- 2026 bonus rate = 20%.
- 2027 bonus rate = 0%
The Bonus Depreciation rate is currently at 80% and is phasing out each year at a rate of 20% until 2027 (or, at least until congress changes the law). Encourage your customers to take advantage of this short-term advantage before it's gone.
Deductions can be used both individually or combined. If combined for the same asset, the Section 179 deduction must be taken first, followed by Bonus Depreciation. Your customers’ tax advisors can explain the nuances of these two tax breaks and how they best fit each situation.
Tax rates may be constantly changing, but one thing’s for sure – there are solutions available for your customers that benefit both their business and yours.
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The above is promotional material. It does not affect the terms of any contract with GreatAmerica Financial Services. It is not intended to and does not constitute tax advice. It is based on assumptions that may not apply in your situation. You should contact your own tax advisors to confirm how applicable tax rules apply to your business and your equipment/software acquisition.