Posted on 29, November, 2018
Last Modified on 16, April, 2020
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Improving your business can be a daunting and expensive task, especially when it comes to investing in marketing and advertising. In order to capture the attention of passersby and turn them into potential customers, many business owners are undergoing a digital transformation, turning to digital advertising fixtures that enhance the presentation of their space and their brand.
From floor standing digital signage to large video wall systems, it’s tough to know where to begin with your digital transformation, or how much to invest. Luckily, the U.S. government offers generous tax incentives for small business owners and entrepreneurs to invest in the growth of their operations.
In short, Section 179 of the tax code* now allows organizations to deduct the full purchase price of qualifying business equipment, including retail and digital displays. In the past, these savings were accounted for in the form of depreciation, so companies could write off the cost of equipment as it depreciates in value over time. For example, if you purchased $10,000 in digital signage that depreciates in value over the course of five years, you could write off $2,000 (or 20 percent of the total cost each year). Ultimately, if you’re in a 35 percent tax bracket, this deduction would present an annual savings of $700 per year for a total of $3,500 after five years. Not bad, right? Well on December 22, 2017, a tax reform was signed that made Section 179 even more generous.
While eligible entities still deducted 100 percent of the total cost of their purchase from their taxes in previous years, the delayed savings prevented them from reinvesting in their company. In an effort to stimulate small and mid-size business growth, the 2018 tax reform revised Section 179 to allow organizations to deduct up to 100 percent of their total investment in equipment for the year and up to $1,040,000 ($1,075,000 for qualified enterprise zone property).
Companies that surpass the $1,040,000 limit may also deduct up to an additional $1,040,000 through Special Depreciation for qualifying property. However, once a corporation exceeds a spending limit of $3.6 million on business equipment, they are no longer eligible for Section 179 tax incentives. Of course, there are other guidelines and limitations to the tax code - one of which is that the assets must be used for business purposes more than 50 percent of the time, and the percentage of business-use determines the amount of the total purchase price that is eligible for tax deductions.
As you can imagine, when small and mid-sized businesses take advantage of these tax incentives, they realize significant savings, reducing the end cost of a digital transformation. If in 2020 you invested $50,000 of capital in video walls, kiosks, and digital a-frame signage, you may be able to deduct the full cost from your taxes, resulting in a savings upwards of $17,500, and reducing the cost of your digital overhaul to only $32,500. Essentially, your tax bracket turns into percent savings on equipment.
If your organization is eligible for tax deductions under Section 179, you’ll need to act before the end of the year.
*Please first consult your tax advisor for details on this tax program and how it can be of benefit to your organization.