IMPLEMENTING SECTION 179 : A Guide for Spa Owners Eligibility and Claiming To benefit from Section 179 , ensure the equipment is eligible and used within the same tax year . Filing IRS Form 4562 is crucial to this process .
A STRATEGIC FINANCIAL APPROACH Using Section 179 can revitalize a spa ’ s financial strategy . It allows substantial immediate tax deductions but requires careful consideration of annual limits . Strategic use of this deduction ensures long-term success and financial stability for spa businesses . n
Avoiding Mistakes Be cautious of potential errors , such as exceeding deduction limits or investing in ineligible equipment .
Scenario Analysis ( see Example at bottom ): In the first scenario of depreciating equipment : l The spa can deduct $ 10,000 each year for five years , resulting in a total deduction of $ 50,000 over the equipment ’ s useful life . l Annual deductions provide consistent tax benefits but may not fully cover the expense in the first year .
In the second scenario of using Section 179 Deduction :
l $ 50,000 in the first year can immediately be deducted , significantly reducing the taxable income for that year .
Example : Comparing Straight-Line Depreciation versus Section 179 Deduction for Equipment Purchases
Comparing straight-line depreciation with Section 179 deductions shows clear financial advantages in choosing the latter for immediate tax relief .
TABLE 1 : Depreciating Equipment using Straight-Line Method
TABLE 2 : Section 179 Deduction for Equipment Purchase Assumptions : Section 179 Deduction
Year Equipment Value Section179 Deduction 1 $ 50,000 $ 50,000
If the business net income the first year was $ 100,000 , then it will be reduced to $ 90,000 after taking the depreciation expense . The business will be taxed on $ 90,000 . Going forward , the net income will be reduced by the same amount of $ 10,000 , and so forth for each year .
$ 100,000 Net Business Income – $ 50,000 Section 179 Deduction on Equipment
$ 50,000 Net Income subject to taxation : This represents 44.44 % of savings to the business
IBANESSA SOTO HOGAN is owner and founder of Masterpiece Accounting Services , with a niche focusing on the spa , wellness and beauty industries . Hogan is an Enrolled Agent ( a license granted by the Internal Revenue Service to tax professionals ), holds a Master ’ s degree in business administration with a concentration in accounting , and serves on the education committee board of the National Association of Tax Professionals . | masterpieceaccounting . com
This article applies to businesses that file U . S . taxes . Information is current as of November 2023 . Tax laws may change at any time . The author recommends consulting with a qualified professional for your own situation .
JANUARY / FEBRUARY 2024 n PULSE 43