The new tax law passed by Congress and signed into law by the president in December implemented many changes to the tax code that will affect business owners of all sizes. As covered endlessly in the news, some of the changes to the tax code stand to benefit small and mid-size businesses while others may have the opposite effect.
However, cutting through the complexity of the new tax law, small and medium-sized businesses should know about one change to the tax code in particular that stands to benefit many businesses that have put off investing in a new security system for their premises. A set of revisions to Section 179 of the IRS tax code changes what property expenses qualify for deduction on business tax returns, and for the first time security systems are included as a qualified property expense.
Understanding the Section 179 Revisions
In short, Section 179 of the IRS tax code outlines what qualifying real property or equipment costs businesses can expense–or in other words, deduct on their business tax returns. Those property or equipment expenses that are allowed under Section 179 qualify whether a business finances the purchase or pays for it outright in any given tax year. This section of the tax code is meant to incentivize businesses to invest in their own growth, while benefiting the overall economy by keeping capital flowing and increasing revenue of other businesses that supply key business-to-business services.
The changes made to Section 179 by the new tax law help to expand the qualified deductions in a way that particularly benefits small and mid-sized businesses, especially those thinking of investing in a new security system for their business.
First, the cap on the maximum deduction allowed under Section 179 has been raised from $500,000 to $1 million. However, the full deduction is only available to those businesses who spend less than $2.5 million on qualifying real property or equipment. After this $2.5 million cap is hit, the deduction a business is allowed to take is decreased on a dollar-for-dollar basis. In other words, businesses that spend over $3.5 million on qualified purchases will not be able to take advantage of this deduction at all.
Second, Congress has amended the list of property and equipment that qualifies as a tax deduction under Section 179. In addition to roofs, HVAC systems and fire alarm systems, security systems have been added to the list of qualified business purchases for the first time. For many businesses, this key change can provide an important incentive to incur the costs associated with performing necessary security upgrades.
What Businesses Stand to Benefit From These Tax Code Changes?
Because the available deduction under Section 179 is reduced dollar-for-dollar after $2.5 million in qualifying expenses are made, the benefits of the new tax law will mostly benefit small and medium-sized businesses, particularly those who would have struggled to cover the cost of a new security system in past years.
Under the previous tax code, businesses were not permitted to write off any of the cost of a new security system. Instead, businesses could only depreciate the costs associated with installing a new security system, forcing many small to mid-size businesses to bear the expense of keeping their employees, customers and business premises safe on their own. Before the recent changes, only repairs to a business’ security system could be deducted on the same year’s tax return.
With the passing of the Tax Cuts and Jobs Act late last year, however, experts estimate that the changes to the tax code will reduce the total cost of purchasing a new security system for a small to mid-sized business by 25 to 30 percent.
What Security Systems are Covered by the Section 179 Changes?
As long as your business falls under the maximum deduction requirements, you are free to choose the new security system that meets your needs. If you already have a security system in place that is in need of an upgrade, any upgrades made to your existing security system can also be deducted on your business tax return under the new guidelines.
The only additional requirement is that your business must purchase or finance your new security system and put it into operation in the 2018 tax year, which runs from January 1, 2018 to December 31, 2018.
Taking Advantage of These Important Tax Code Changes
Protecting your business’ premises and the employees and customers who pass through them is essential for ensuring that your business runs smoothly. With the recent change to the tax code, there is no better time to invest in a new security system or upgrade your existing outdated system than right now. To learn more about our security system offerings and to schedule an appointment for a free estimate, please contact Great Valley Lockshop by filling out our free online estimate request form or calling us at 610-644-5334.