Most people think the Section 179
deduction is some mysterious or complicated tax code.
Apart from the fact that the Government treats it like a
light switch, turning it on and off and dimming it and
brightening it according to the wishes of the powers
that be, it really isn't all that complicated.
Essentially, Section 179 of the IRS tax code allows
businesses to deduct the full purchase price of
qualifying equipment and/or software purchased or
financed during the tax year. That means that if you buy
(or lease) a piece of qualifying equipment, you can
deduct the FULL PURCHASE PRICE from your gross income.
It's an incentive created by the U.S. government to
encourage businesses to buy equipment and invest in
When your business buys certain items of equipment, it
typically gets to write them off a little at a time
through depreciation. In other words, if your company
spends $50,000 on a machine, it gets to write off (say)
$10,000 a year for five years (these numbers are only
meant to give you an example).
Now, while it's true that this is better than no
write-off at all, most business owners would really
prefer to write off the entire equipment purchase
price for the year they buy it.
In fact, if a business could write off the entire
amount, they might add more equipment this year instead
of waiting over the next few years. That's the whole
purpose behind Section 179 - to motivate the American
economy (and your business) to move in a positive
direction. For most small businesses, the entire cost
can be written-off on the 2016 tax return (up to
$500,000). In arriving at the $500,000 deduction the
rules state that the deduction is good on new and used
equipment, as well as off-the-shelf software. This limit
is only good for 2016, and the equipment must be
financed/purchased and put into service by the end of
the day, 12/31/2016.
Section 179 does come with limits - there are caps to
the total amount written off ($500,000 for 2016), and
limits to the total amount of the equipment purchased
($2,000,000 in 2016). The deduction begins to phase out
dollar-for-dollar after $2,000,000 is spent by a given
business, so this makes it a true small and medium-sized
Bonus depreciation is offered some years, and some years
it isn't. Right now in 2016, it's being offered at 50%.
The most important difference is both new and used
equipment qualify for the Section 179 Deduction (as long
as the used equipment is "new to you"), while Bonus
Depreciation covers new equipment only.
Bonus Depreciation is useful to very large businesses
spending more than the Section 179 Spending Cap
(currently $2,000,000) on new capital
equipment. Also, businesses with a net loss are still
qualified to deduct some of the cost of new equipment
and carry-forward the loss.
When applying these provisions, Section 179 is generally
taken first, followed by Bonus Depreciation - unless the
business had no taxable profit, because the unprofitable
business is allowed to carry the loss forward to future
It gets a little sticky when it comes to vehicles and
other equipment not used 100% for business. If you
remember, several years back it was referred to as the
“Hummer loophole.) They closed the loophole and now
require that such equipment be used more than 50% for
business, and that the percentage business use applied
to the cost and only that amount qualifies for Section
Never forget, QuickBooks Enterprise comes with Fixed
Asset Manager to handle you depreciation calculations.
In addition it helps you manage varying aspects of your
The Release Notes for QuickBooks
Fixed Asset Manager, Tax Year 2016 include:
Federal cost recovery provisions in the Protecting
Americans From Tax Hikes (PATH) Act of 2015
50% for property placed in service through 2017
(including $8,000 additional first-year
depreciation on luxury autos and trucks)
"Qualified Improvement Property" (as defined in
the Act, that is MACRS nonresidential real
property) placed in service starting in 2016 is
eligible for bonus depreciation
Section 179 limits and eligible property made
Deduction and investment limits of $500,000 and
Section 179 deduction on Qualified Retail,
Qualified Restaurant, and Qualified Leasehold
Section 179 deduction on computer software
15 year recovery period made permanent on Qualified
Retail, Qualified Restaurant, and Qualified
Leasehold Improvement Property
screen below shows the Fixed Asset Item information
available. You can use custom fields to capture other
desired information. If you want to monitor maintenance
costs, you can set up a service item linked to the asset
item with the appropriate expense account mapping and
code R&M expenditures there and run reports on the
service items showing ongoing maintenance costs.
When acquiring equipment, make sure you set up the fixed
asset item mapping it to the appropriate fixed asset
account code and don’t just record the purchase to the
asset GL account.
open the Fixed Asset Manager, go to the Company menu and
click Manage Fixed Assets.
Here is a screen shot of
the Fixed Asset Manager listing all assets:
are some of the features the Fixed Asset Manager offers:
integration with QuickBooks data.
detailed, customizable asset entry screen.
depreciation bases (Book, State, Federal, Other, AMT,
Projected depreciation calculations.
queries and sorting.
variety of built-in depreciation reports and forms.
ways to export and import data.
Integration with ProSeries Tax products.
addition to synchronizing data with QuickBooks, the
Fixed Asset Manager has its own data files that can hold
more detailed asset information than a company (QBW)
file can hold.
client has approximately $50,000,000 in Property and
Equipment, so having Fixed Asset Manager is important.
They can review, run reports, make corrections much
easier, run projections and because they have set up
custom service items linked to the fixed assets, use the
data to Really Manage their fixed assets.
is a close up look at an individual fixed asset in FAM.
You will note that the input form captures personal
property tax data. In addition, it is obvious that this
asset entry is incomplete. Note the mapping to
accumulated depreciation and depreciation expense is
We hope we have provided you with valuable information
for your 2016 tax return and opened your eyes to a tool
you might already have in hand. If you need help in
implementing, contact us.