The Tax Incentive That Could Save Midsized Business Owners Millions
Updated November 2023
Cast your mind back and ask yourself what it was that got you hooked on this business in the first place. Was it the early mornings and late nights? The dirt under your nails? Or the reward of a great harvest or big project completion?
For many builders and producers, the answer is simple: It was the equipment — the excitement of sitting in the cab of the biggest, best equipment farming and construction had to offer and tending to an operation with detailed care.
While investing in new machinery is exciting — and crucial for improving your efficiency, productivity and overall yield — a volatile economic market spurred by inflation, supply chain challenges and other pandemic disruptions means many business owners are reconsidering their end-of-year investment plans.
Fortunately, tax incentives, such as new deduction limits under Section 179 of the Internal Revenue Code, may help reduce your taxable income on new and used equipment purchases made in 2023. Here's how Section 179 works, as well as how it can help boost your bottom line.
What is Section 179 and who does it help?
In short, Section 179 allows a taxpayer to elect to treat the cost of qualified property purchases, such as machinery and equipment used in a trade or business, as an expense in the year placed in service. In 2023, the deduction allows taxpayers to elect to expense a portion, or all, of the cost of new and used equipment purchases, up to $1,160,000. Calculate your tax savings using our sponsored tax calculator.
Customers should note the following about Section 179 in 2023:
- 1. Section 179 expense gets reduced "dollar for dollar" by the amount that total equipment purchases exceed $2,890,000, until the $1,160,000 is completely phased out when total purchases equal or exceed $4,050,000.
- 2. Section 179 can help reduce your 2023 taxable income by allowing an immediate write off up to $1,160,000 of qualifying purchases. Bonus Depreciation is being phased out but remains at an attractive 80% in 2023 for qualifying purchases not covered under Section 179.
With these provisions, Section 179 is squarely aimed at small-to-midsized businesses that make annual equipment purchases, in some cases allowing producers and builders to deduct the entire cost of machinery investments made throughout the year.
"Take, for instance, a $300,000 tractor," said Dan Spaulding, US Sales Manager, CNH Industrial Capital. "With Section 179, business owners can effectively reduce the true cost of the purchase by $63,000 of cash savings in one year when calculated at the 21 percent tax bracket. Those kinds of savings really add up, and potentially put growers and builders in a better earning position for years to come."
Why is now the time to take advantage of Section 179?
Because the tax code is always being updated, there's no guarantee that the same provisions from this year will roll over into the next. For these reasons, it pays to take advantage of the generous deductions now. Doing so can help you reduce your taxable income in 2023 — not only that, but according to Spaulding, those savings can be allocated toward creating new business opportunities that might not otherwise be available to small-to-midsized farms and construction businesses.
"These tax savings give farmers and builders an opportunity to make a real investment in their operation," Spaulding said. "By reducing their taxable income, they'll be able to update their equipment, get some of the latest technology, expand their acreage, create new marketing opportunities and perform better strategy development."
Of course, in the current economic climate, many business owners have more than just equipment purchases to think about. Some growers and builders may choose to act more conservatively, saving funds to prepare for an unstable market year ahead. But Spaulding believes now is still the time to invest in Section 179. "Inflation and higher than usual input costs may be challenging but investing in efficiency-boosting equipment now will put customers ahead, instead of set them back," said Spaulding. "Simply put, there's always going to be a need for this machinery and getting the best deal possible on it while that deal is available will give a lot of business owners peace of mind."
What's the best way to take advantage of equipment deductions?
Where should growers and builders start to take advantage of Section 179? "Dealers are the best place to begin," said Spaulding. "Because they're so close to the operations they serve, they know and understand what kind of equipment their customers need."
While a trusted certified public accountant can assist with purchasing and investment questions regarding Section 179, CNH Industrial dealers can also help. By offering equipment advice and creating a streamlined purchasing experience that puts growers front and center, local dealers help operations thrive.
In other words, the spark that got you into this business — the promise of sitting in the shiny piece of equipment — isn't going anywhere soon. Talk to your local dealer to learn more about how you can take advantage of Section 179 deductions.
*Equipment must be placed into service between January 1, 2023, to December 31, 2023. CNH Industrial Capital does not provide tax, legal or accounting advice. Dealers and their customers are strongly encouraged to seek their own professional advice on the proper treatment of these transactions.