The Section 179 deduction in the Internal Revenue Code lets businesses expense in full qualified equipment in the year they buy it. This deduction can be used for many types of equipment purchases, including vehicles, machines, computers, office furniture and equipment, and even software.

The Section 189 Deduction is not some obscure or arcane loophole in the tax code. It is designed to encourage business equipment investment by letting businesses deduct from their gross income the full purchase price of qualifying equipment in the same year that they purchase or finance it. This incentive, created by congress, is designed to encourage businesses to invest in themselves with new equipment purchases.

First, what officially is the Section 179 deduction?

“Section 179 of the IRS Tax Code allows a small business to deduct, for the current tax year, the full purchase price of financed or leased equipment that qualifies for the deduction. The equipment purchased or leased must be within the specified dollar limits of Section 179, and the equipment must be placed into service in the same tax year that the deduction is being taken (for tax year 2010, this means the equipment must be put into service between 01/01/2010 and 12/31/2010).” (Via Section179.org FAQs)

Usually when you purchase a piece of equipment, you get to write it off a little bit at a time over its useful life. However, this section in the tax code will allow you to write off the full amount right away.

Here is a short video from Rhonda at Crest Capital that explains how the Section 179 deduction works, and how you can use it to write off your equipment or software purchase:

Our ESC service software meets the requirements and falls into the standard Section 179 equipment write-off. However, for anyone that wants to take advantage of the Section 179 Tax Deduction for this year, the software needs to be in service by December, 31 2010. For more information about how the tax deduction applies to software, there is an article on Section 179 and software on Section179.org.

Most businesses that purchase or finance less than $2 million in equipment purchases in 2010 should qualify for the deduction. The other important qualification is that the purchased equipment must be put into service before the end of the year.

There are less than four weeks until this enhanced Section 179 tax deduction expires, so there is still time to take advantage of this tax code. This is a use it or lose it program. With it you can write off the entire cost of equipment or software you purchase. However, as a reminder, to qualify the purchase must be in place by December 31, 2010.

If you are looking to get an idea of how much you could save with the Section 179 tax deduction, you should check out Crest Capital’s Tax Deduction Calculator. The calculator is updated with all the limits for the 2010 tax year, and can give you a good idea of how much you could save on your equipment purchases that you finalize before the end of the year.

You can find more info about the Section 179 deduction at www.Section179.org.

Have you used the Section 179 deduction in your business? Leave your story in the comments.