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IRS Tax Code Section 179

IRS Tax Code Section 179 and CARES ACT

All of you tax savvy readers might be aware already, but this is worth mentioning considering the circumstances. 

Under the Tax Cuts and Jobs Act, the Section 179 tax deduction has increased to $1 million. Which means, if you purchase a qualifying piece of equipment, you can deduct the full purchase price from your gross income. 

This deduction applies to new and used equipment. To take the deduction for tax year 2020, the equipment must be financed or purchased and put into service between January 1, 2020 and the end of the day on December 31, 2020.

Now, receiving a Paycheck Protection Program loan through CARES ACT and applying for the tax deduction complicates matters. As any forgiven Paycheck Protection loan will not be considered a deductible expense. However, this can be offset with a qualifying

equipment purchase under the Section 179 tax deduction.

This means that now is the time to make that capital equipment purchase you have been waiting for. There is simply no other time than the year 2020 with all the interruption on your business created through COVID to take advantage of this great tax deduction strategy.

Let us assume for example, your revenue for the year 2020 was $700,000, and the deductible expenses were $450,000. If Paycheck Protection Program loan was used as the payroll for the staff. Let us say that was $120,000 and if that amount was forgiven, then that amount cannot be considered a deductible expense. Hence, your tax deduction would be reduced to $330,000, rather than $450,000. Now, if you use this opportunity to purchase a Cone Beam CT unit which would cost $77,000. That amount can be used to make up for some of that lost deductions. So now, you would be able to deduct $407,000 from your income.

Above assumptions would mean that, at 22% corporate tax rate, this would result in tax savings of $16,940 by deciding to purchase the Cone Beam CT unit before the year 2020 draws to a close. Hence, we at Ray America, inc. implore you to make that jump and invest in your practice.