In the collision repair and maintenance world, having the latest tools and equipment is paramount to delivering top-notch service. As vehicles evolve, so does the need for upgraded machinery and diagnostics. However, such investments can sometimes strain the finances of a repair shop. This is where Section 179 of the U.S. tax code steps in, offering significant tax advantages. Read on to find out how spending more at the end of 2023 can help you in the new year.
What is Section 179?
Section 179 allows businesses, including collision repair shops, to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. This means if your shop buys or leases a piece of qualifying equipment, it can deduct the FULL PURCHASE PRICE from its gross income.
Why is Section 179 a Game-Changer for a Shop Like Yours?
Instant Tax Relief
Instead of spreading out the equipment cost deduction over several years, repair shops can get an immediate deduction in the year the equipment is purchased and put into service.
Promotes Equipment Upgrades
As digital features and electric cars are dominating our vehicles, these modern vehicles require modern tools. Section 179 incentivizes collision repair shops to acquire the latest equipment, ensuring they can service all types of vehicles efficiently.
Flexibility in Purchases
The provision covers both new and used qualifying equipment, giving shops the choice between cutting-edge tools or more affordable, yet effective, used equipment. Check out our used equipment here.
Points Collision Repair Shops Should Note:
As of the most recent update in 2023, there’s a rule that says your auto repair shop can reduce its taxable income by up to $1,160,000 when it buys new equipment. But remember, this rule might change in the future, so it’s a good idea to keep up with the latest tax rules or talk to a tax professional to get the best advice.
Equipment Purchase Cap
For the year 2023, if your auto repair shop spends more than $2,890,000 on tools and equipment, the amount of money you can save on taxes with Section 179 starts to go down. Think of it like a special offer that gets a bit less generous once you spend over a certain amount. That’s why it’s important to plan how much you spend on equipment carefully. By doing so, you can make sure you get the most benefit from this tax-saving opportunity.
It’s essential to be aware of these limits and plan your equipment purchases accordingly to maximize your tax benefits. Keep in mind that tax laws and thresholds may change from year to year, so it’s essential to consult the most current IRS guidelines and work with a tax professional for accurate advice tailored to your specific situation.
Equipment or software must be used for business purposes more than 50% of the time to qualify.
Claiming the Deduction
To benefit from this deduction, collision repair shops need to complete Part 1 of IRS form 4562.
For repair shops looking to enhance their service quality and efficiency, Section 179 offers a valuable financial advantage. By strategically investing in equipment and tools and leveraging this tax provision, collision shops can position themselves for success in an ever-evolving industry.
Always consult with a tax professional to ensure accurate and up-to-date tax advice.