A Section 179 deduction is something companies of all sizes can take advantage of throughout any calendar year. This part of the IRS tax code can help lessen the financial burden of business-centric purchases or leases. The IRS provides this option for companies as an incentive to invest in qualifying property or equipment that would otherwise be too costly to afford.

In this blog post, we will advise how companies like yours have used the Section 179 deduction to offset the purchase or lease of business software like NetSuite ERP.

It’s important to note that the terms change every year and sometimes in the middle of a year without notice, so keep this in mind.

What is the Section 179 deduction?

It is a standard part of the IRS tax code that enables companies to deduct the full cost of property or business equipment without paying the full price at the time of purchase.

You can finance or lease qualifying equipment or property, start using it, and then on your taxes, you can write off the full price of the qualifying equipment or property.

However, it must be purchased and used during the tax year being claimed.

So, instead of writing off the depreciation of a purchase or lease over several years, companies can do it during the year it was purchased and used.

So, you can make the purchase or lease NOW instead of waiting, and you will get significant tax savings from the deduction.

QUICK IMPORTANT FACTS FOR 2022

  • Equipment must be purchased, financed, or leased and used between January 1, 2022, and December 31, 2022.
  • The 2022 Deduction Limit is $1,080,000
  • The 2022 Spending Cap on equipment purchases is $2,700,000
  • Bonus Depreciation is 100% for 2022

Again, these will change annually and can even change mid-year. Do your due diligence by contacting an accountant or tax professional.

(Click here for financing info.)

How are NetSuite and other business software eligible?

NetSuite and other business software are eligible as “off-the-shelf computer software.” The IRS defines it in the following way.

“This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. It includes any program designed to cause a computer to perform a desired function. However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software.”

Here are a few other requirements according to the website Section179.org.

  • It must be purchased or financed with a specific qualifying lease or loan
  • It must be used in your business for income-producing activity
  • It must have a determinable useful life
  • It must be expected to last longer than one year

What if we need to finance instead of purchasing outright?

That is fine and could actually be more financially beneficial for your company. How?

This is possible by combining financed equipment with the Section 179 deduction. Companies can deduct the full cost of a purchase without paying that amount during the year of the purchase.

So, you’ll only be making monthly payments for NetSuite, but you will receive a tax credit for the full amount of your purchase.

As a result, the tax savings from this combination are typically substantial enough to outweigh your cash expenditure for that year.

You can also lease “off-the-shelf computer software” as there are advantages here too. That is covered below.

SuiteCentric offers financing options for NetSuite through our strategic partners.

We can offer up to $500k in application-only financing without requiring financial statements.

Amounts over $500k require financing statements, but the process is streamlined.

Financing covers 100% of project costs, including software, hardware, training, implementation, and third-party vendors.

With the help of our partners, we can transform a substantial software purchase into a low monthly payment. And your company will be upgraded with NetSuite’s world-class ERP and other modules. Click here to learn about NetSuite pricing.

What about leasing?

Leasing has similar benefits to financing, but there are different requirements. Companies must be mindful of ASC 842 as it has changed how leases are recorded and reported. These changes can affect how leases are structured, with the length of the lease impacting bottom lines.

A non-tax capital lease is a popular way to take advantage of the Section 179 deduction.

Our team and partners are happy to answer any questions about leasing and NetSuite.

Are you ready to take advantage of the Section 179 deduction for NetSuite or its modules?

Yes, I’m ready. Let’s talk!

Not ready? Stay in touch with us.