Most equipment vendors are familiar with Section 179, but are not using it effectively to drive sales. This is unfortunate, because properly positioned within a marketing campaign; Section 179 can be used quite effectively to provide significant incentives for customers to acquire equipment and software. Furthermore, since Section 179 benefits are set to expire on December 31, 2013, it can also serve to create urgency in the acquiring decision. Not only will customers want to obtain their equipment in order to take advantage of Section 179, they will want to “do it now.”
Section 179 of the IRS Tax Code allows a business to deduct the total cost of certain types of equipment from their income taxes as an expense in the year the equipment was acquired and put into service, up to a maximum limit of $500,000. This improves cash flow by easing the tax burden, since the equipment deduction directly reduces the amount of taxable income.
The logic behind Section 179 is simple. If a business can deduct the entire amount of a piece of equipment the year it is put into service—instead of depreciating it over a period of several years and then deducting the incremental depreciation charges—there is a significant incentive to acquire more equipment. Section 179 helps to motivate businesses to invest more aggressively, which in turn stimulates the overall economy.
A business that does not take advantage of Section 179 must instead capitalize the acquired equipment, and then depreciate it over time. In this case, only the amount of depreciation claimed each year according to the appropriate depreciation schedule is deducted from taxable revenue.
The list of equipment that qualifies under Section 179 is relatively broad, as demonstrated below. Here is summary list of qualified equipment:
- Office equipment such as copiers, printers, telephone systems, fax machines and any other machines used in an office
- Computers and related computer equipment
- “Off-the-shelf” software (Note: this provision excludes software that is custom developed specifically for a particular business)
- Tangible equipment such as machinery, compressors, photographic equipment, and other similar equipment acquired specifically for business use
- Office furniture
- Tangible personal property that is used in business (Note: if the property is “partial business use” meaning that it used for both personal and business purposes, only the percentage of use that relates to the business is deductable under Section 179)
- Certain business vehicles (Note: the provisions regarding Section 179 vehicle deductions are constantly changing, so it is important to obtain professional tax advice before taking these deductions)
- Property that is attached to a building but that is not a structural component of the building
The bottom line is that regardless of your industry and the type of equipment that you sell, Section 179 is most likely a very useful tool for your customer that can save them a significant amount of money. Additionally, since the benefits will most likely be completely eliminated on December 31 of 2013, customers who want to take advantage of the benefits should act quickly in order to qualify.
Although many of your customers are probably aware of Section 179, it is also likely that many are not. Furthermore, the biggest barrier for most businesses when it comes to Section 179 is that, because it has to do with taxes, they do not fully understand it and often do not want to commit the time and resources to find out about it. For that reason, one of the best ways to leverage Section 179 is to position your dealership as an information resource that can help customers to take advantage of it.
One way to do that is to create a Section 179 promotion designed to stimulate year-end sales. The strong financial incentives of Section 179, coupled with a clearly defined time frame provide the perfect ingredients for a successful marketing campaign. A good way to deliver your messages about Section 179 would be using targeted emails and perhaps direct mail to cut through the clutter. By the time they finish consuming your information, every one of your customers should understand what Section 179 is, how they will benefit from it, and how to take advantage of it. Simply accomplishing that should make the phone ring.
It is also a good idea to educate your sales force about Section 179 as well. Details about Section 179 should be scripted into every sales discussion that occurs between now and the end of the year. Section 179 can also be used as a very compelling closing tool.
Section 179 is not an arcane piece of tax legislation that requires a CPA or tax attorney to interpret. Instead, it is very straightforward tax benefit that is both easily understood and implemented, designed to stimulate the economy by selling equipment. Section 179 will expire soon—be sure to take advantage of it while you can.