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.
From what we see, there’s a lot that shop owners get right. They understand how to lead their teams, grow their shops, and bring trust and transparency to their customers. But as a former trainer and franchise performance specialist, I do notice a lot of little inefficiencies that add up.
Tekmetric touches every part of running your shop -- from managing customer information and measuring business metrics to facilitating digital vehicle inspections, repair order workflows, and even payment processing.
Well, there’s an easy way to make sure none of that happens ever again.
Just like how it’s easier than ever to book an appointment with your doctor, or even your barber, in a matter of seconds online -- your auto repair shop can modernize the scheduling process too.
During a recent webinar, Join Kieran O’Brien Co-founder of ShopGenie Co-Founder, and our very own PJ Leslie, Head of Business Development at Tekmetric, offered their insight on how auto repair shops can provide a modern experience for their customers with online scheduling.
As much we like to think we’ve always been at the top, no one is born a boss. Before you became an auto repair shop owner, you probably held other positions and had someone else bossing you around. Think back to those bosses, and how you felt about those jobs.
You may have had some bosses who you didn’t like. Their leadership style might have been too aggressive, or maybe they didn’t take the time to show you the ropes.
But hopefully, you had at least one boss who helped you get to where you are today. Typically, good bosses:
Strongly support your career growth by encouraging you to gain new skills
Understand when you have to take some time off or shift your work hours
Trust you to get the job done instead of micromanaging you
Show you they value your contributions to the team
Effectively communicate instructions and priorities to you
If you had a supportive boss who championed you at work, you probably went above and beyond—you knew they valued your work. Your former boss’s great leadership qualities probably set an example for you, influencing how you run your own shop today.
We’re willing to bet you’re already an excellent leader, running your own shop in a way that inspires your team, just like how your previous bosses might have inspired you. But, just like you expect your employees to grow in their roles, your employees expect you to continue growing as a leader.
By fine-tuning your leadership skills, you can bring the absolute best out of yourself and your team.
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