Section 179 Deductions

Tangible business assets include vehicles, equipment, and furniture. Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. Depreciation ties the cost of using an asset with the benefit gained over its useful life. The IRS specifies the useful life of many types of assets under the Modified Accelerated Cost Recovery System (MACRS).

For example, if a realtor purchases a car to drive to showings for $30,000, the car would be depreciated over 5 years. Each year, depreciation would be deducted until the accumulated depreciation equals the purchase price.

However, taxpayers might prefer to deduct the full purchase price in the first year instead of over the useful life of the asset. Deducting the full cost of the asset would result in a lower taxable income and therefore a lower tax burden, leaving more cash on hand for investment in the business or for distributions to the owner during that year. Furthermore, the time value of money posits that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim.

In some cases, the taxpayer can elect to immediately expense the asset rather than following the rates outlined in MACRS. The tax code has this provision in place to encourage business owners to grow their business with the purchase of new equipment.

Section 179 of the Internal Revenue Code outlines the requirements for an immediate deduction. For 2022, the maximum deduction is limited to $1,800,000. The property must be placed into service during the tax year in which the deduction is being claimed. In our realtor example, placing the car into service would be driving it to a business appointment. Assets must be used for business purposes more than 50% of the time to qualify for Section 179 deductions.

If you have questions about the purchase of business assets or any other tax-saving opportunities, call our office at 480-392-6801.

Catch-Up Retirement Contributions

Experts recommend investing for retirement early and often. When life gets in the way, however, that ideal may not be achievable. The government has provisions in place to help employees over the age of 50 either get on track or augment already solid savings. The retirement account contribution limits for employees over 50 is larger than the standard contribution limits.

The “catch-up” provision was created in 2001 by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The act provided relief to investors who lost significant value in their retirement portfolios in the wake of the dot-com bubble. From the bubble’s peak in March of 2000, stocks had declined in value by 75% by October of 2002. The law also revised the life expectancy tables used for determining retirement ages.

In 2006, the Pension Protection Act made provisions for catch-up contributions permanent.

As of 2022, employees over 50 may contribute:

 

Account Type Additional Contribution  
IRA $1,000 on top of the standard $6,000 contribution limit
ROTH IRA $1,000 on top of the standard $6,000 contribution limit
401(k) $6,500 on top of the standard $20,500 contribution limit
SIMPLE 401(k) $3,000 on top of the standard $14,000 contribution limit

 

Note: These contribution limits are for employees only. Small business owners may be able to contribute more as employer contributions.

Call our office at 480-392-6801 if you would like to talk about your retirement options