Maximizing your 2023 tax savings

TAX SEASON 2023

Your guide to Section 179 and Bonus Depreciation

The end of the year will be here before we know it with everyone’s favorite season right around the corner — tax season. It may seem unnecessary to start thinking about 2023 tax filings this early, but time is running out to make equipment purchases that could qualify for Section 179 or Bonus Depreciation tax benefits. Below, we break down Section 179 and Bonus Depreciation and what they both look like for 2023.

Section 179

Section 179 is one of the best tax tools for small business owners. This deduction allows you to deduct the full price of qualifying purchased or financed equipment, vehicles, and software during the tax year. For the 2023 tax year, equipment must be installed and put into service between Jan. 1, 2023, and Dec. 31, 2023, to qualify.

To ensure Section 179 benefits small and mid-sized businesses, the deduction phases out on a dollar-by-dollar basis after eligible purchases reach $2,890,000, with a total cap of $1,160,000 that can be written off. The deduction goes away once businesses spend more than $4,050,000 on eligible purchases. Though Section 179 is a permanent fixture in the Internal Revenue Code (reported through IRS Form 4562), each year the caps are adjusted for inflation. This year is the highest deduction ever for Section 179, with the deduction for last year in 2022 capped at $1,080,000.

Another key aspect of Section 179 is that businesses can pick and choose which assets to deduct, giving this deduction a little more flexibility than Bonus Depreciation. Though it’s possible to get to zero taxable income with Section 179, the deduction can’t be used to put you in a taxable loss. An important caveat with Section 179 is the equipment, vehicles, and software also have to be used more than 50% of the time for business purposes to qualify.

Bonus Depreciation

Unlike Section 179, Bonus Depreciation is not a permanent part of the tax code, and is currently being phased out. While Bonus Depreciation was offered at 100% last year, this year in 2023, business owners can only deduct 80% of qualifying purchased or financed equipment in the first year it is put into service.

Unless new legislation is passed, Bonus Depreciations will continue to phase out on the following schedule:

» 60% in 2024

» 40% in 2025

» 20% in 2026

» 0% in 2027

While Section 179 allows business owners to pick and choose which assets to deduct, Bonus Depreciation is applied automatically in an all-or-nothing manner. However, business owners can elect out of classes with Bonus Depreciation. If you have five-year property, seven-year property, and 15-year property, you could elect out of all the properties in one of those classes.

Another difference between Section 179 and Bonus Depreciation is that Bonus Depreciation can take you into a taxable loss that can be carried forward or, for a limited time, potentially carried back up to five years. Bonus Depreciation also doesn’t require more than 50% business use like Section 179.

It’s important to talk to your tax professionals to ensure compliance when trying to use the Section 179 or Bonus Depreciation benefits. If you have equipment or vehicles to purchase before the end of the year, it’s important to get your orders in as soon as possible to ensure you take delivery and put equipment into service before Dec. 31, 2023. Please reach out to our team with any questions or concerns you might have or to get the ball rolling on a new equipment purchase today!

About United Leasing & Finance

Founded in 1964, United Leasing & Finance is an independent direct lender committed to providing equipment financing solutions to businesses across the U.S. and Canada. Our experienced team of finance professionals shares a passion for helping businesses grow. We understand every business is unique, which is why we work closely with our clients to create custom financing solutions tailored to their specific needs. With almost 60 years of experience, we’ve built a reputation for being a trusted partner to businesses of all sizes, from small businesses to Fortune 500 companies. Partner with us to see how we can help your business grow.

*The information contained here is for informational purposes only and not to provide tax, legal, or accounting advice. United Leasing & Finance assumes no obligation to inform readers of changes in tax laws or other changes that could affect the information here. You should always consult your tax professional before making any financial or tax decisions. The information here is not intended for and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer.