Story by Harry Brelsford, CEO, SMB Nation -
John Scheich, long-time SMB Nation member and Southern California MSP, is also a CPA and can lecture on the Section 179 matter. Shown here at the SMB Nation Fall Conference 2012 holding a book by Karl Palachuk!
What is a Section 179 provision and why are MSPs happy about it?
First – the technical definition defined by MarketWatch: “The Section 179 deduction allows the cost of qualifying new and used depreciable assets (including most software) to be fully written off in Year One. For assets placed in service in tax years beginning in 2015 and beyond, the new law maintains the maximum Section 179 deduction allowance at the generous figure of $500,000 (same as for the last few years). For post-2015 years, the $500,000 cap will be indexed for inflation.”
Second – What is the context? In 2013 on my nationwide tour touting the Windows XP migration opportunity, I trumpeted the Section 179 tax provision as a door opener for having clients invest in new IT assets and upgrade to Windows 7 (or maybe, just maybe, Windows 8). The generous $500,000 upfront deduction was about to be reduced to a mere $25,000. The idea was to spend in late 2013 like a drunken sailor and reduce your tax obligation dramatically before New Year’s 2014. The investment in hardware, software and your services all qualified under Section 179. Comprende?
Third – What does it mean today? Literally today as your read this on December 27th, you have several days to spend baby spend. That’s because the Congress, when it passed the Protecting Americans from Tax Hikes Act of 2015 in early December, retroactively applied the $500,000 upfront deduction to calendar year 2015. You are home free in 2016 under this legislation as well.
Translation: MSPs should awaken their clients over the holidays and seek spending authority to rapidly deploy hardware, software and services before midnight December 31st. Then do it all over again January 1, 2016! This is your very best short-term value proposition for your sales outreach efforts.
Fourth – Can I still buy a Hummer? Section 179 was well-known years ago for spurring sales of heavy SUVs like the Hummer as a business vehicle (wink-wink). That loophole appears to have been restricted with a $25,000 deduction limit (read here). Assuming you and your tax adviser understand all that – here is a list of heavy SUVs that would qualify: At first blush, I’d take the Ford F150 as my choice. How about you?
Finally – this is how the game is played in Washington DC. Lots of add-ons to the >$1.1T spending bill for the US Federal Government. This Section 179 reinstatement is expected to cost the Treasury nearly $200B over several years. If you’d like to get more politically active as an MSP, I can recommend two organizations: CompTIA and Microsoft Voices for Innovation.