For a side-by-side to be a valid tax write-off for a farm, the purchase must be ordinary and necessary for running that type of business. Thus, a side-by-side would generally be considered a valid tax write off for a farm. With the new amendments to section 179 tax deductions during the recent Trump administration, buying vehicles such as ATVs and side-by-sides are 100% deductible whether new or used.
I am from Indiana, and my current residence is in Southern Idaho, so needless to say I have been surrounded by farms my entire life. While I have never lived in one myself I spent various summers helping out on farms detasseling corn and other farm activities.
We have all heard about how big corporations have made it hard on the small to medium-sized businesses to grow and make an impact on the market or even to turn a decent sized profit.
It is difficult even, with help from the government, to take care of all of the activities and chores that they have to do. A lot of small-town farmers, who can’t compete with the industry giants like Beck, for example, have a hard time purchasing the necessary tools and machinery needed to do the work and stay afloat.
Thankfully that is where section 179 comes into play. It is a great help to small-time farmers and does not just apply to vehicles like ATVs and side-by-sides, but to machinery in general.
We will go ahead and take a look at section 179 and see just how it applies to farmers, and how you can utilize it for your own small ranch or farm, in order to save money and get the extra help and power you need for your farm or ranch.
Section 179 Explained
Every single state has a different way to file your taxes, and if you need to know how to go about doing such then I would recommend talking to a CPA for an exact how-to guide concerning your specific states and its laws. If hiring a CPA isn’t your style, there are so many free tax tools available that can ensure Uncle Sam gets the most accurate information.
There are some generalities however that will carry over from state to state. That is that no matter the specific process you will need to follow, you will end up writing off your ATV, or side-by-side under section 179.
Now I know that taxes seem daunting and confusing, and they most certainly can be. Most of us did not spend our educational careers looking forward to crunching numbers and learning to become knowledgable about tax laws and processes.
Section 179 is actually pretty simple however and is not a mystified and complex tax code. The general explanation is this:
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year.Section 179.org
So what does that mean for you? Well, it means that if you buy, or even lease, a piece of qualifying equipment (ATVs and UTVs qualify) then you can deduct the full purchase price from your gross income.
The government set this up to help encourage small businesses to buy equipment that they need to essentially invest in themselves and the growth of their business.
If you were in business several years ago, you may have heard of this write off being called a different name like the “SUV Tax Loophole” or the “Hummer Deduction” because many businesses used this tax code to write off qualifying vehicles.
Those various vehicles have been drastically reduced since then, but Section 179 is still very beneficial, especially to the small business owner.
How does Section 179 Work?
So you may be thinking to yourself “well great Geoff, glad to know it is possible to write off my side-by-side, but how the heck does it work?” That is a good question, that has a pretty simple answer.
Previously under different tax codes, a business could write off qualifying equipment a little bit at a time through depreciation. So, for example, if you were to buy a piece of equipment for $60,000 you may have been able to write off $10,000 a year over six years.
Most business owners would have liked to write it off all at once though, and that makes sense because you would not have been able to get a solid return on your investment right away.
And let us say that your small business would have failed, as 50% of small businesses do within their fifth year, it would not have been a smart move to invest in something of that size right away.
So now as Section 179 stands as it is you can write off the entire purchase of qualifying equipment in the current tax year. Many businesses can and have benefited from this being able to invest in their businesses quicker.
Are There Limitations?
So all of this sounds fine and dandy, but are there any limitations to the tax code? The answer is yes, yes there are. You cannot just go about and buy millions of dollars of equipment and then write it off at the end of the year.
Under Section 179 there is a monetary limit, you can only spend up to $1,000,000 in 2019 and have it written off. There are also limits as to how much you can spend on equipment purchased and that is $2,500,000 in 2019.
The deduction begins to phase out on a dollar-per-dollar basis after $2,500,000 is spent by business and so the entire deduction goes away after $3,500,000.
Even with the limitations, we are talking about millions of dollars being able to be deducted here and that is crazy. This can help small and even medium-large sized businesses grow and prosper.
Now businesses that before could not afford to invest in themselves and purchase necessary equipment have the means to do so.
What is Considered Qualifying Equipment & Who Qualifies?
Throughout this article, and when talking about Section 179 I have been using the term “qualifying equipment” quite a bit. So you are most likely going to want to know just what kind of things fall under that category.
You may also want to know if you even qualify for this write-off, to begin with, and I’ll answer that for you here as well.
All businesses that purchase, finance, and/or lease new or used business equipment during tax year 2019 should qualify for the Section 179 Deduction (assuming they spend less than $3,500,000).Section179.org
As for what types of things qualify for Section 179, the answer is quite a lot. Most tangible goods used in business qualify, including business-use vehicles (ATVs and side-by-sides).
There are other things such as office furniture, computers, office equipment, machines for business use, and much more than qualifies. There is a full list on the section 179 website that you can look at to see what exactly qualifies on the web as well.
In order for purchased equipment to apply for and qualify for Section 179, the equipment, vehicles, software, supplies, etc., must be used for business purposes for more than 50% of the time.
In order to find out if your vehicle or equipment reaches that qualification just multiply the cost of the equipment, vehicle, or software, by the percentage of business use and that will give you the answer as to whether or not you arrive at the monetary amount eligible for Section 179.
One other thing on equipment that qualifies. In order to qualify for the Section 179 deduction the equipment, software, etc., purchased or financed must be placed into service between January 1, 2019, and December 31, 2019.
Section 179 Vs Bonus Depreciation
As some of you may know there is a tax code that you can file for that falls under bonus depreciation. Some years bonus depreciation is offered and other years it is not. As for the current year of 2019, it is offered at 100%.
Bonus depreciation is not Section 179 though. The biggest difference between the two is that both used and new equipment qualify for Section 179, as long as the equipment is “new to you.”
Bonus Depreciation only previously covered new equipment until the most recent tax law was passed, where it now covers both used and new equipment.
Bonus Depreciation was and still is, a very big help to large companies or corporations. This is because they typically spend much more the Section 179 cap of $2,500,000 on new capital equipment.
When a person is applying these tax codes, Section 179 is usually taken out first, followed then by Bonus Depreciation, unless the business had no taxable profit that year.
An unprofitable business can carry their loss forward toward future years, making Bonus Depreciation unnecessary for them.
So, all in all, yes you can write off your side-by-side on your taxes and it is thanks to Section 179. For more information on this topic head to Section179.org.