The end of the fiscal year for many companies is approaching and, with that, questions arise as to what your business could be doing to benefit your bottom line.
Did you know?
An extension of The Small Business Jobs & Credit Act of 2010, Section 179, gives key tax incentives for implementing new technology like our test and measurement instruments.
Section 179, which covers specific property items, is one of the greatest tax boons ever for business owners big and small. For those in the manufacturing industry it means investing in a new piece of test equipment can amount to a big annual deduction. Section 179 allows you to take a complete depreciation deduction in one year instead of taking it a little at a time over your instrument’s useful lifespan. At Kett, we are still servicing instruments bought in the late ‘60’s. The useful lifespan of a durable, industrial - grade Kett instrument can amount to over 40 years. Wouldn’t it be nice to be able to expense it in only two months?!
How does it work?
Let's take a look at how it works in this example: In 2013, Mike, a buyer for Rice Puffs Cereal Manufacturing Plant, purchases a $10,000 moisture meter to measure the moisture in his raw ingredient storage. Using the straight-line depreciation method, which falls under regular depreciation rules, Mike must deduct a portion of the cost each year over it’s 25 year useful life, which averages out to $400 per year.
Instead, Mike opts to utilize Section 179 expensing to deduct the moisture meter, which allows him to deduct the entire $10,000 price tag from his company’s income taxes in 2013, a 96% increase in 2013 deductions for that instrument!
What technology qualifies?
Test equipment and measurement instruments, such as moisture meters grain analyzers, composition analyzers and whiteness testers are all considered property eligible to qualify for the 179 deduction.
The key is that they must be used in your business more than 50% of the time. Section 179 was designed specifically for tangible property which includes computers, business equipment, and process machinery. Basically, that’s all included in the 200+ products we manufacture at Kett. Even the cost of computer software, like the Tracker Software program included with our KJT moisture meter series for statistical measurement and process diagnostics, can be deducted.
How do you ensure that your instrument purchase qualifies?
Your moisture meter, or any piece of test equipment, must be used more than 50% of the time for business (not personal use) and it must be owned by your business, so this section of tax code doesn’t apply to our rent-to-own customers. Verifiable records must demonstrate its use for business purposes. All of our meters incorporate full digital communications capabilities, data storage, and host process control that can be easily accomplished from a stand-alone PC, networked solutions, or PLC facilities. Record keeping is part of their job so it’s easy to document that it was working in 2013!
Why purchase new equipment before 2014?
Depreciating a piece of equipment over time, to match the expense of the technology with the value that it adds in a given year, is a common practice. So why would you take advantage of Section 179?
Taking a 100% deduction on the cost of a Kett instrument allows you to reinvest the return into your business almost immediately. Importantly, 2013 may be the last year you can take such a huge deduction on new technology, up to $500,000! The limit goes down significantly in 2014, to just $25,000. So, now is the time to make large purchases in new technology, apply the Section 179 tax incentives, and watch the financial gains unfold.