Deduct New Equipment and Replacement Parts When You File Your Taxes

It’s that time of year again—tax season is here, and businesses across the U.S. are finalizing their financials. Whether you’re running a restaurant, a heating supply company, or any other industry, equipment management is key. From outdoor gas heaters to barbecue grills, understanding how to handle these assets from a tax perspective can save you significant money. So, should you invest in new equipment or stick with repairs? Let’s break it down.

Repair vs. Replace: A Complex Choice

Deciding whether to repair or replace your existing equipment isn’t always straightforward. For instance, if you own a set of Sunglo Outdoor Heaters that need extensive maintenance, you’ll face a tough decision. Should you sink $1,000 into repairs for each unit, or bite the bullet and replace them entirely? Several factors come into play here: the condition of the equipment, the cost of repairs, and its remaining useful life.

But it’s not just about the equipment itself—it’s also about taxes. Before making any big decisions, you need to understand how the IRS treats these expenditures.

The Case for Repairing Equipment

If you opt to repair your equipment, the IRS views those costs as a current expense. This means you can deduct the entire amount in the same year you incurred the cost. For example, suppose you own some aging Patio Comfort Heaters that need repairs costing $1,000 per unit. When you file your taxes for 2018, you can fully deduct that expense. The beauty of a current expense is that it reduces your taxable income immediately, without spreading out the deduction over multiple years.

One important note: current expenses are non-carryforward items. You cannot “save” this deduction for future years. However, they often provide better short-term tax benefits compared to depreciation expenses.

Buying New Equipment: Capital Expenses

When you purchase new equipment like gas grills or heaters, the IRS considers this a capital expense. Unlike current expenses, capital expenses aren’t fully deductible in the year of purchase. Instead, you depreciate the cost over the equipment’s expected lifespan. There are two main methods of depreciation: straight-line and declining balance.

For instance, let’s say you buy a new gas grill in 2018 for $5,000. If you expect it to last five years and choose straight-line depreciation, you’d deduct $1,000 annually. Over five years, you’d fully depreciate the asset. Declining balance depreciation, on the other hand, allows you to take larger deductions upfront before tapering off later.

Section 179 Deductions: A Game Changer

A critical consideration when deciding between repairs and replacements is the Section 179 deduction. Under this rule, instead of depreciating an asset over several years, you can deduct its full cost in the year of purchase. For 2018, the IRS allows businesses to deduct up to $1 million for Section 179 expenses. Previously, this limit was $500,000 for 2017.

This option is particularly appealing for equipment like heaters and grills because they typically qualify for the deduction. By taking advantage of Section 179, you can reduce your taxable income significantly in the year of purchase.

Making the Right Call for Your Business

Ultimately, whether to repair or replace your equipment depends on your specific situation. If you choose repairs, you’ll enjoy the immediate tax benefit of a current expense. Alternatively, if you go with new equipment, you can still maximize your tax savings by leveraging Section 179 deductions or traditional depreciation methods.

Remember, consulting with a tax professional can help ensure you make the most financially sound decision. They can guide you through the nuances of the IRS rules and tailor recommendations to your unique business needs.

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