Like many other areas of tax law, the IRS has placed Section 179 deduction limitations to ensure no business can take improper advantage of the deduction. The purpose of tax deductions is to make it appealing for businesses to make improvements by promising a financial break on taxes to make up for some of the cost of making those changes to the business. However, it is important for any business to learn about the limitations to ensure they can make the most of the deduction without going overboard.
Dollar Amounts
One of the most important caps to consider is the cap on the amount of money a business can spend on improvements. This cap is quite high, which means most businesses won’t be able to reach the cap when making reasonable changes within their business to make it more energy efficient. Because this dollar amount can fluctuate somewhat from year to year, it is important to talk to a trained professional to learn what each year’s limit is.
Dates
Another of the Section 179 deduction limitations is the dates during which the purchases and renovations can be made to a business. With this aspect of the tax code, all purchases and changes must be made between December 31, 2005 and January 1, 2014, allowing businesses plenty of time to consider the changes they would like to make and to put them into place so they can qualify for this deduction to help reduce their tax liability for the year.
Reduction Limits
When it comes to making certain changes to your business, you will need to understand your limitations for your deductions. For instance, if you change the business envelope and reduce it by 10 percent, you will be able to deduct $0.60 per square foot within your building. Likewise, you can deduct the same amount if you reduce your HVAC use by 15 percent and your lighting by 25 percent. If you improve on all three of these aspects, you can deduct up to $1.80 per square foot total, which can be a significant savings.
Reducing your tax liability is a great way to encourage businesses to make changes that will benefit everyone in the long run. These deductions are designed to make it easier for businesses to afford these changes. However, there are businesses that would overuse these deductions, which is why there are Section 179 deduction limitations in place to protect everyone.
To learn more about the Section 179 deduction limitations you should be aware of, visit the Walker Reid Strategies.
