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What is Section 179 Deduction? A Comprehensive Legal Overview
Definition & Meaning
The Section 179 deduction is a provision in the United States Internal Revenue Code that allows businesses to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year. This deduction is beneficial as it enables businesses to treat these purchases as expenses rather than capitalizing and depreciating them over time. This can lead to significant tax savings, especially for small businesses actively engaged in trade or business activities.
Table of content
Legal Use & context
The Section 179 deduction is primarily used in tax law, particularly in the context of business expenses and deductions. It is relevant for businesses of all sizes that acquire eligible property for active use in their operations. Users can manage their tax filings using legal templates provided by platforms like US Legal Forms, which offer forms and guidance for claiming this deduction.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A small business purchases a new delivery truck for $50,000 and uses it exclusively for business purposes. The business can deduct the full $50,000 from its taxable income for that year.
Example 2: A software company buys new computers and software for $20,000. Since these purchases are used actively in their operations, they can claim the entire amount as a deduction. (hypothetical example)
Relevant laws & statutes
The primary statute governing the Section 179 deduction is the Internal Revenue Code Section 179. This code outlines the eligibility criteria, limits, and procedures for claiming the deduction. Additionally, IRS Publication 946 provides further guidance on depreciation and the Section 179 deduction.
State-by-state differences
State
Section 179 Deduction Limit
California
Varies; typically aligns with federal limits but has specific rules.
New York
Follows federal limits but may have additional state-specific deductions.
Texas
Generally follows federal guidelines with no state income tax.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Section 179 Deduction
A tax deduction for the full purchase price of qualifying equipment.
Allows immediate expensing rather than depreciation.
Bonus Depreciation
A method to accelerate depreciation on property.
Can be used in addition to Section 179 but has different eligibility rules.
Common misunderstandings
What to do if this term applies to you
If you think the Section 179 deduction applies to your business, start by gathering documentation for your equipment purchases. Ensure that the property qualifies under IRS guidelines. You can use US Legal Forms to find templates and forms to help you claim this deduction. If your situation is complex, consider consulting a tax professional for tailored advice.
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