Download Section 179 Deduction Calculator 2021 in Excel, OpenOffice Calc, Google Sheet to easily calculate the Section 179 deduction amount and evaluate your potential tax savings in 2021.
Just insert the cost of equipment, your taxable income, type of business and it will automatically calculate the Section 179 Deduction for you.
Moreover, this article consists of complete details related to Section 179 Deduction for the year 2021 like definitions, eligibility criteria as well as phaseout limits.
What is Section 179 Deduction?
Section 179 deduction is one of the most useful tax breaks for small and medium-sized businesses. It enables the businesses to deduct the complete cost of high-value purchases such as equipment, furnishings, and machinery in the first year of purchase.
Eventually, this provides considerable financial assistance to firms on the acquisition of required high-value commercial equipment.
Section 179 of the Internal Revenue Code allows companies to deduct the cost of purchased or financed equipment/software during the tax year.
In simple terms, if you purchase or lease high-value equipment for business, you can deduct the complete purchase price from your gross income.
With the help of this deduction, the IRS encourages small and medium-sized businesses to purchase equipment that can help them improve their products or services.
If the purchase of your equipment is above the allowed deduction, the IRS also allows a Bonus Depreciation each year.
What is Bonus Depreciation 2021?
Bonus depreciation is an IRS tax break that allows businesses to deduct a huge portion of qualified assets as depreciation in the first years instead of depreciating them over the useful life. Bonus depreciation is also known as the first-year depreciation deduction.
In 2021, due to the Tax Cuts and Jobs Act of 2017, this depreciation has been raised to 100% of the remaining amount after the Section 179 deduction.
Furthermore, you can opt for Bonus Depreciation even if you don’t qualify for the Section 179 Deduction. There is no limit for Bonus Depreciation in 2021 if the asset is placed in use during 2021.
Section 179 Deduction 2021
For tax years beginning in 2021, the maximum section 179 expense deduction is $1,050,000. Also, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2021 is $26,200.
Section 179 deduction amount starts reducing after reaching the threshold limit. The formula to calculate it is given in the phaseout section below.
Eligibility for Section 179 Deduction
To qualify for a Section 179 deduction, your asset must be:
- Tangible Assets such as furniture, equipment, and computer software. Intangible assets, such as patents and copyrights are not eligible. Buildings and land are also ineligible, while certain building-attached equipment qualifies, such as fire suppression systems, alarms, and air conditioning units.
- Must be in use in 2021 for business purposes. Usage of assets less than 50% of the time is not eligible.
- The cost of the equipment should not be above your taxable income. If your taxable income is lower than the cost of equipment then you are not eligible for the deduction.
Equipment List for Section 179 Deduction
- Equipment like machines, furniture purchased for business use.
- Tangible property used in business.
- Business Vehicles with a gross vehicle weight above 6,000 lbs.
- Computers and Computer Software.
- Office Furniture and Office Equipment.
- Equipment attached to your building like a printing press, large manufacturing tools, and equipment.
- Equipment for partial business use.
- Additional restructuring expenses to existing business property like fire suppression, alarms and security systems, HVAC, and roofing.
Section 179 Deduction Phaseout Limit
Section 179 Deduction phaseout starts at $2,620,000. Thus, you can take a full deduction of $1,050,000 up to this amount.
Moreover, the deduction starts to reduce dollar for dollar above this limit.
For example, if the cost of your equipment is $2,850,000. Then the calculations will be as below:
$2,850,000 – $2,620,000 = $230,000 Difference
$1,050,000 – $ 230,000 = $820,000 Section 179 Deduction.
Furthermore, the phaseout ends at $3,670,000. Thus, if the amount exceeds this amount you are not eligible for the deduction.
Download Section 179 Deduction Calculator 2021
We have created a simple and easy-to-use Section 179 Deduction Calculator 2021 with predefined formulas and functions. Just insert the applicable amounts and it will calculate the deduction as well as bonus depreciation for you.
Download by clicking below on the desired format:
Additionally, you can also download Federal Income Tax templates like MAGI Calculator 2021, Adjusted Gross Income Calculator 2021, Itemized Deduction Calculator 2021, Federal Income Tax Calculator 2021, Recovery Rebate Credit Calculator, Employee Retention Credit Calculator 2021, Paycheck Calculator, and IRS Compliant Mileage Log Template.
Furthermore, feel free to contact us for the customization of this template as per your requirement. We also design new templates based on your needs. You can hire us for our services on Fiverr or directly contact us at firstname.lastname@example.org.
How To Use Section 179 Deduction Calculator 2021?
This template consists of 3 sections. Let us understand each section in detail.
Section 179 Deduction 2021 and Phaseout Limits
For calculation purposes, this section consists of the following three items:
Maximum Section 179 Deduction
Section 179 Deduction Phaseout Start
Section 179 Deduction Phaseout End
In this section, you don’t need to enter anything.
This section consists of the following:
Cost of Qualifying Equipment
Corporate Income Tax Rate
Taxable Business Income
Select your business type from the dropdown list. Based on your type of business, the template will automatically display the Corporate Income Tax Rate. If there is a different tax rate applicable to you, then enter manually.
Insert the total cost of Equipment for which your want to claim the Section 179 Deduction.
Lastly, insert the taxable business income. It is necessary because the equipment only qualifies if the deduction amount is less than the taxable income.
Section 179 Deduction Calculations
This section consists of predefined formulas and is auto-populated based on the information provided in the above section. It consists of the following heads:
Section 179 Deduction
Adjusted Gross Basis
Equipment Value After Section 179
100% Bonus Depreciation
Total First Year Deduction
Section 179 Deduction amount uses the following formula to calculate the deduction amount:
Therefore, if the cost of equipment is below $1,050,000 then it will fetch the actual amount in the cell.
In case the amount is between $1,050,000 and $2,620,000, it will display the full deduction amount.
But, if the amount is above $2,620,000, then it will use the formula given above in the phaseout limit section.
The template displays 0 if the cost of equipment is above the taxable income or the phaseout limit which is $3,670,000.
Moreover, it also will calculate the bonus depreciation for the remaining amount. The remaining full amount after Section 179 deduction can be claimed as Bonus Depreciation.
The template also displays the total tax saving based on your tax bracket. It multiplies the total deduction including bonus depreciation.
You can use this form to fill out IRS Form 4562.
Frequently Asked Questions
What is Taxable Income Ceiling in Section 179 Deduction?
The Section 179 deduction is capped to your company's taxable income for the year. Thus, you cannot deduct more than your taxable income. For example, if you have a taxable income of $920,000 before claiming the Section 179 deduction and the cost of your Equipment is $950, 000. Therefore, your Section 179 deduction will be $920,000 instead of $950,000.
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Disclaimer: This article is for information and educational purpose. Information provided here shall not be treated as tax advice. Kindly consult a tax expert before filing your tax return.