Legal Disclaimer: This article is written for informational purposes only and does not constitute professional financial advice. Please reference section179.org and a professional accountant for advice on financial planning and filing taxes.
As 2020 comes to an end, you might be thinking about all of this year's expenses and wondering what you might be able to write off on your taxes. You may even be considering whether or not to make a big purchase, weighing the tax deductions you could get if you bought it this year versus next.
Is it worth buying that new lift before the year ends? Or should you put it off until 2021?
What is Section 179?
Section 179 of the IRS tax code allows business owners to write off the entire cost of a piece of equipment, renovations, or other assets in the first year instead of writing off an asset a little bit at a time over a five, seven, fifteen, or thirty-nine year period. To give an example, if a shop owner buys a new tire machine, they could either write off the taxes over a seven-year period, or they can use Section 179 to get the entire deduction in the first year.
What Type of Costs Qualify for Section 179?
Tangible business property, including machinery and equipment
Leasehold improvements
Computer software*
*Is Tekmetric Eligible for Section 179?
Generally speaking, off-the-shelf computer software that has been purchased outright is eligible for Section 179. Because Tekmetric is a web-based software and does not make users sign a contract, it is not eligible for section 179, but it does qualify for a standard tax deduction.
What are Leasehold Improvements?
Leasehold improvements are any repairs or modifications that you make to your building or property, including adding a new roof, installing security or safety systems, and remodeling parts of your building without expanding the footprint. Without Section 179, leasehold improvements depreciate over 15 or 39 years, depending on what the improvements are. With Section 179, you can receive the entire deduction in the first year.
How Often Does Section 179 Change?
Section 179 is typically adjusted every several years. Most recently, Section 179 was adjusted in 2018 when the deduction limit was doubled and more types of purchases were made eligible. Section 179 may change again in the following years.
When Should You Use Section 179?
If you know that you’re going to pay taxes this year, and you have made a major qualifying purchase, then you may want to consider using Section 179 to save on your taxes and free up some cash flow for 2021.
If you financed a major purchase, you may want to consider how soon you plan on paying off that purchase and whether or not you would like to receive a tax deduction in the following years as you pay it off. For example, if you have a loan on a piece of equipment that you plan on paying over five or ten years, you may want to opt for the regular depreciated tax reduction so that you have money to offset those taxes in the following years.
Should You Make a Major Purchase Before the Year Ends to Use Section 179?
It’s not the wisest decision to buy something just to save money. It is true that Section 179, and tax benefits in general, are the best that they’ve been in years, but consider only making a major purchase if it is already in your plan and budget. If it is something that you already planned on buying in the next six months, then you may want to make the purchase before the end of the year to leverage Section 179’s tax deductions.
Talk to the Auto Repair Accounting Experts
Every situation is different. Take a look at what your tax rates are and ask yourself, "Is my income low enough this year where I'm actually reducing taxes at a pretty low rate? What do I think the tax rates are going to be in the future? Or will this benefit me more in the coming years when I think I'll be making more money?"
Talk to your accountant to form a game plan for all of this.
This article was written with the guidance of automotive repair industry CPA Hunt Demarest of Paar, Melis, & Associates, P.C.
Need help planning your taxes for 2020? Contact Paar, Melis, & Associates.
Your automotive shop is the beating heart of your business. A well-designed basic auto shop layout can streamline operations and refine your business.
When you plan to refresh your auto mechanic shop, consider how to make efficient use of your available space, enhance safety, refine the look and feel of the shop, and improve customer comfort. Most of all, upgrading the technology that forms the backbone of your business is a major component of a modern auto shop.
Manage space effectively
No matter how much square footage your shop has, you can maximize your layout to house everything you need. Consider the size and shape of your space before you commit to a specific layout. Evaluate the services you currently or intend to provide so you can plan your space safely and efficiently.
Some of those considerations include:
Equipment locations: Look at your permanent installations, such as lifts and compressors as well as movable items.
Storage: Organize storage areas so parts and equipment are easily accessible and tidy, both making them easy to find and improving your shop’s appearance and parts storage.
Working areas: Set up your workbenches and counter space so technicians can perform detail work away from the vehicle.
Loading bays: Verify your loading bay areas have adequate clearance.
Waiting rooms: Design an appealing spaceso your customers have a clean, well-lit, and comfortable place to wait.
Administrative offices: Make sure your employees have all the tools they need to keep the business running efficiently.
Effective space management also plays a big part in keeping an auto shop safe.
When you think about the most exciting aspects of being in the auto repair industry, it’s unlikely that the invoice and estimating process comes to mind. Drafting up invoices and getting approval on estimates can be a tedious process when all your team wants to do is get things rolling with the repair! And if you have a small team, it might be tough to find someone who can squeeze in the time to create an estimate and invoice for every single repair.
However, the auto repair invoice and estimating process is one of the most important parts of your business. By fine-tuning it, you can keep better track of repairs and sell more work, increasing your shop’s ARO.
Here are five main reasons why you should fine-tune your shop’s auto repair invoice and estimating process.
.png)
.svg)
.svg)
.svg)
.svg)
.svg)
.svg)
.svg)
.svg)
