Turbocharging Your Bottom Line: Maximizing Savings With Vendor Equipment Finance

Published on: 1/18/2024

Turbocharging Your Bottom Line: Maximizing Savings With Vendor Equipment Finance

Are you in an industry that relies on expensive equipment to operate your business? If so, then the IRS-179 incentive is something you should be taking advantage of. This powerful tax break enables companies that place purchases of big-ticket items during their current tax year to deduct a substantial portion, if not the entire qualifying cost.

Utilizing this incentive, you can turbocharge your bottom line by avoiding costly cash outlays when purchasing essentials such as technology, security, or lab equipment.  

In this article, M1 Financial provides an overview of how IRS-179 works. We also share insight into maximizing cost savings using an equipment financing company. But first, let’s discuss some common challenges of acquiring innovative equipment.

Challenges of Purchasing Equipment

Recognizing and understanding the typical challenges companies face regarding purchasing equipment is crucial. Understanding these hurdles can help you navigate the terrain more effectively.

  • Upfront Costs: One significant challenge is the high upfront costs of acquiring essential equipment. Many businesses, especially small and medium-sized companies, may struggle to allocate a substantial portion of their budget to equipment purchases.
  • Cash Flow Management: Balancing cash flow can be tricky when you make large equipment purchases. It's essential to ensure that your business has the liquidity to maintain day-to-day operations while investing in critical assets.
  • Equipment Lifespan: Equipment has a finite lifespan. Businesses must consider depreciation and the need for periodic upgrades or replacements, which can impact long-term financial planning.
  • Competitive Edge: Staying competitive often requires access to the latest technology and equipment. However, acquiring cutting-edge machinery can be financially challenging for many businesses.

Equipment finance and leasing companies offer solutions to these challenges and provide businesses with a competitive edge.

How Equipment Finance Companies Help

  • Budget-Friendly Terms: Equipment finance companies, like M1 Financial, understand the financial constraints businesses face. They tailor financing plans with extended terms, often up to 84 months, spreading the cost of equipment over manageable monthly payments.
  • Cash Flow Management: Businesses can finance equipment to preserve their cash flow for essential operating expenses. This ensures you have the liquidity needed to keep your business running smoothly.
  • Equipment Upgrades: Equipment finance companies allow businesses to stay ahead of the curve by providing opportunities for equipment upgrades or replacements. This ensures that you can access the latest technology without straining your finances.
  • Tax Benefits: Partnering with equipment finance companies can unlock significant tax advantages through IRS Section 179 deductions and Bonus Depreciation.

Exploring IRS Section 179

Businesses can take advantage of the following key provisions related to the IRS Section 179 tax deduction1:

  1. 2023 Deduction Limit: The deduction limit for 2023 is $1,160,000. This deduction applies to both new and used equipment, as well as off-the-shelf software. To claim the 2023 tax year deduction, the equipment must be financed or purchased and placed into service between January 1, 2023, and the end of December 31, 2023.
  2. 2023 Spending Cap on Equipment Purchases: There's a spending cap of $4,050,000 on equipment purchases for 2023. This cap represents the maximum amount that can be spent on equipment before the Section 179 Deduction begins to be reduced on a dollar-for-dollar basis. This feature makes Section 179 a valuable tax incentive for small businesses, as larger companies that spend more than $3,780,000 on equipment won't be eligible for the deduction.
  3. Bonus Depreciation for 2023: 2023 Bonus Depreciation is set at 80%. This additional depreciation can typically be claimed after the Section 179 Spending Cap is reached. It's worth noting that Bonus Depreciation is available for both new and used equipment.


Maximizing Tax Benefits With Equipment Finance

Businesses can effectively align their equipment acquisition with tax strategies by choosing equipment financing through reputable companies like M1 Financial. 

Here's how you can maximize these tax benefits:

Strategic Planning

Work with an equipment finance company that understands tax provisions like IRS-179. They can help you strategically plan your equipment acquisitions to maximize deductions.

Combining Depreciation Methods

Sometimes, a combination of immediate write-offs through Section 179 and traditional depreciation methods can yield the most significant tax benefits.

Proper Documentation

Keep detailed records of equipment purchases, financing agreements, and usage. This documentation is vital when claiming tax deductions.

Seek Expert Advice From a Tax Professional

Consult with their accountant, bookkeeper, or tax professional to fully leverage the benefits of equipment financing and tax strategies. This additional step can provide a more comprehensive financial perspective. 

IRS Section 179 presents a valuable opportunity for businesses now and in the foreseeable future. By taking advantage of this tax incentive, you can enhance your financial strategies, achieve significant savings on equipment and asset purchases, and pave the way for a more prosperous fiscal future. Understanding IRS-179 is a beneficial step toward optimizing your long-term financial outlook. 

Ready to supercharge your financial strategies and explore the benefits of IRS-179 for your equipment acquisitions? Contact M1 Financial today.