Deduct New Equipment and Replacement Parts When You File Your Taxes

Welcome to another tax season! As businesses across the U.S. gear up for the upcoming filing period, one important consideration is how to handle equipment-related expenses. Whether you’re managing outdoor gas heaters or high-end gas grills, it’s crucial to approach these purchases and repairs with tax implications in mind. For many companies, deciding between repairing old equipment or investing in new gear isn’t always straightforward. This decision becomes even more complex when you’re dealing with items like Sunglo Outdoor Heaters or AEI Gas Grills. Let’s explore the factors that should guide your thinking.

Repair vs. Replace: A Complex Choice

Repairing existing equipment may seem like the simpler option, but it comes with its own set of considerations. If your Patio Comfort Heaters require extensive maintenance, spending $1,000 on repairs might sound reasonable. However, before committing to this expense, think about the long-term benefits. The IRS treats repair costs as current expenses, meaning you can deduct the entire amount in the year you incurred it. For instance, if you spend $1,000 repairing an aging heater in 2018, you’ll enjoy a full tax deduction that year. But remember, these deductions don’t roll over—you can’t carry them forward to future years. Typically, current expenses offer greater tax advantages compared to depreciation expenses.

Buying New Equipment

When you purchase new equipment, the IRS views it as a capital expenditure. These investments are meant to enhance your business’s earning potential. Unlike current expenses, capital expenditures aren’t fully deductible in the year of purchase. Instead, you depreciate the cost over the equipment’s useful life. Let’s say you buy a new gas grill for $5,000 in 2018. Assuming a five-year lifespan and straight-line depreciation, you could deduct $1,000 annually for the next five years. This gradual deduction helps spread out the financial impact while still providing tax relief.

Section 179 Deduction: A Game-Changer

Here’s where things get interesting. Under Section 179, you have the option to deduct the full cost of qualifying equipment in the year you acquire it. This means you could expense the entire $5,000 spent on that gas grill in 2018. For the 2017 tax year, the maximum deduction was $500,000, but for 2018, it jumped to $1 million. Not all assets qualify, but heaters and grills certainly do. This provision gives businesses flexibility. If you’d rather not commit to a multi-year depreciation schedule, Section 179 allows you to maximize your deductions upfront.

Making the Right Call

Ultimately, the decision between repairing and replacing hinges on several variables. Both options offer distinct tax benefits. While current expenses provide immediate deductions, Section 179 and standard depreciation allow for longer-term planning. Consulting with a tax advisor can help you weigh the pros and cons specific to your situation. They can guide you toward the most advantageous strategy based on your company’s needs and goals. After all, every dollar saved through smart tax planning is a step closer to achieving profitability.