Putting Tax Code Section 179 to Work for Your Machine Shop!

In simple terms, Section 179 of the IRS tax code allows businesses to deduct the entire cost of certain qualified equipment purchases in the year they're put into service, rather than spreading those deductions out over several years. 

Here's how it benefits small and medium machine shop businesses:

• Immediate Tax Savings: Instead of deducting a portion of the equipment's cost each year through depreciation, machine shops can deduct the full amount upfront. This leads to an immediate reduction in their taxable income and, consequently, their tax bill, according to Section179.Org.

• Improved Cash Flow: By reducing their tax liability immediately, businesses have more cash on hand. This extra capital can be reinvested into the business for other operational needs, expansion, or modernization.

• Encourages Investment: Section 179 is designed to incentivize businesses to invest in themselves by making equipment purchases more affordable. This allows machine shops to upgrade to newer, more efficient machinery or acquire specialized tools, leading to increased productivity and competitiveness, according to Blue Bridge Financial. 

Example: A machine shop purchases a $350,000 CNC machine.

• Without Section 179: The business might deduct roughly $70,000 per year over five years through depreciation.

• With Section 179: The business can deduct the full $350,000 in the year the machine is placed into service, immediately reducing their taxable income and saving money.

Limits and conditions (2025)

• Deduction Limit: For the 2025 tax year, the maximum deduction limit under Section 179 is $1,250,000.

• Spending Cap: The deduction begins to phase out once a business spends more than $3,130,000 on qualifying equipment.

• Bonus Depreciation: After Section 179 is applied, businesses can also utilize bonus depreciation (which is 40% in 2025).

• Business Use: The property must be used more than 50% for business purposes.

• "New to You" Acquisition: The equipment can be new or used, but it must be new to your business. 

• In essence, Section 179 provides a powerful tool for small and medium machine shops to significantly reduce their tax burden and free up capital for growth by allowing them to deduct the cost of equipment purchases upfront.