Section 179 of the tax reform legislation has created significant opportunities for companies to upgrade current equipment, add new capabilities and take advantage of packaging automation.
Packaging equipment can make companies better marketplace competitors. The right equipment can free up labor, increase speed to market, enhance the functional and visual properties of your packaging and, multi-function equipment can free up space for other activities and growth.
The tax benefits can mean more cash flow as a result of the deductions and depreciation. Here’s how.
The Section 179 deduction
The Section 179 deduction increases the amount of business property purchases, like equipment, you can expense each year—originally $500,000 per year, now up to $1 million per year. Before, this spending was capitalized and depreciated in a way that spread the tax benefit out over several years. Now, Section 179 allows a business to take the tax break immediately, in the year the equipment is purchased (or leased/financed) and placed into service.
If you spend more than $2.5 million on business property during the year, your ability to use the $1 million Section 179 deduction is reduced dollar-for-dollar above that amount.
Take a look at a complete list of property that qualifies for the Section 179 deduction here.
It’s important to note, Section 179 can change each year, so it may be advantageous to take advantage of a purchase or lease before this year ends.
First-Year Bonus Depreciation
Typically, bonus depreciation is used for short-lived capital investments that have a 20-year or less use like equipment, machinery, and software. Similar to Section 179, bonus depreciation allows a business to immediately expense these capital purchases rather than depreciating them over several years. New and used equipment qualifies as long as they’re put into service at your business during the (first) tax year. The allowable bonus depreciation begins to decline after 2022, falling to 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.
The new law also increases the bonus depreciation percentage from 50% to 100% for qualified property acquired and put into service between September 27, 2017 and January 1, 2023. Any property acquired before September 28, 2017 and placed in service before January 1, 2018, remains at 50%. Special rules apply for longer production-period property.
You can learn more about the Section 179 deduction here and first-year bonus depreciation here.
The Section 179 Deduction and bonus depreciation offer unique benefits your business. The time is now to put the new tax laws to work for you. The tax incentive and bonus depreciation are “use it or lose it” for the end of the year.
If you’ve used your Capex for 2018 and want to take advantage of this unique opportunity, talk to your SupplyOne Packaging Equipment Specialists. They are adept at identifying creative solutions that will enable you to make packaging automation part of your high growth strategy.