Reduce Taxable Income Using Low-Cost Equipment Financing

Rarely does the convergence of two macro-economic events create such a significant opportunity for business owners. First, the passage of the Tax Cuts and Jobs Act (TCJA) in 2017 leveled the playing field for small businesses by enacting several new tax advantages. Now, in 2021, interest rates are still hovering around their historic lows, providing new opportunities for business financing. Together, they provide business owners with a rare opportunity to convert significant tax savings into capital investment in their business.

Bigger Tax Deductions Under Enhanced Section 179

Business owners who have plans to purchase new equipment sometime this year are best positioned to capitalize on this opportunity. Utilizing the enhanced Section 179 provision allowing the immediate 100% expensing of qualifying equipment up to $1 million, business owners can reduce their taxable business income this year by the amount of the deduction.

The deduction is now available on most types of equipment put into use this year, including depreciable tangible property used in connection with lodging and improvements to non-residential property. The deduction is phased out on equipment purchases over $2.5 million.

Increased ROI on Capital Investment Due to Lower Interest Costs

A well-planned Section 179 deduction can enable your business to retain cash to reinvest in your business. A well-time deduction can allow you to simultaneously take advantage of low-interest rates to finance an equipment purchase and using the deduction to reinvest the tax savings into your business.

The timing of this latest round of rate cuts couldn’t be better for small businesses with expansion plans. When interest rates decline, it also leads to a lower cost of capital that can encourage capital investment for business expansion. Businesses with expansion plans can access capital at a lower cost, improving their return on investment.

When combined with the more liberal Section 179 deductions, lower borrowing costs create an attractive opportunity for businesses to grow their business through new equipment purchases. The expanded deductions have the potential, along with lower borrowing costs, to drastically improve bottom lines in 2021 and 2021.

Now’s the Time to Consider Year-End Equipment Purchases

Well before the last quarter of 2021, small businesses should take time to reevaluate their plans for equipment purchases. If your business is projected to generate more revenue in the current year than next year, you could consider accelerating any equipment purchases into the current year. Or, if you expect bigger profits next year, you may want to delay your purchase. Now would be the time to evaluate your plans to purchase equipment and meet with your tax advisor to determine the best timing based on your projected income this year and next.

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