Forklift Section 179 Deductions

In the dynamic field of material handling, strategic financial planning is as critical as operational efficiency. The Section 179 Tax Deduction continues to be a vital asset for businesses investing in equipment such as forklifts. With 2024 on the horizon, it's time to explore the updated nuances of Section 179 and how it can be effectively utilized to enhance your company's financial health for the 2023 tax year.

Does a Forklift Qualify for Section 179 Deduction in 2023?

Yes, forklifts are eligible for the Section 179 deduction. As essential equipment in material handling, forklifts are classified as "business equipment" by the IRS, making them prime candidates for this tax-saving opportunity. Whether acquiring a single unit or an entire fleet, forklifts can be deducted from your gross income in the year they are put into service, offering substantial tax relief and aiding in cash flow management.

Your tax savings is approximately 37.8% of the purchase price

What's New in 2023 for Section 179?

The Section 179 landscape is constantly evolving, and 2023 has brought its share of updates. The maximum deduction now stands at $1,160,00, with a total equipment purchase limit of $2,800,000 to remain eligible. These adjustments reflect the government's support for businesses investing in growth and efficiency.

Understanding Bonus Depreciation for 2023

While bonus depreciation has been a secondary consideration to Section 179, it remains an important facet of tax planning. In 2023, bonus depreciation allows for an 80% deduction of the cost of new equipment beyond the Section 179 cap, providing additional tax relief for businesses with substantial capital expenditures.

Example of Tax Savings with Section 179 and Bonus Depreciation for 2023:

For this example, let's assume you purchase one new forklift for $25,000.

• Initial Purchase: $25,000
• Section 179 Deduction:
  • The business elects to deduct the full purchase price under Section 179.
  • Section 179 deduction: $25,000
• Tax Savings from Section 179:
  • This deduction reduces taxable income by the full cost of the forklift.
  • At a 21% tax rate, the savings amount is $25,000 x 21% = $5,250
• Bonus Depreciation:*
  • For 2023, bonus depreciation is at 80% for additional qualifying purchases beyond the Section 179 cap.
  • $25,000 x 80% = $20,000
  • At a 21% tax rate, the savings amount is $20,000 x 21% = $4200
• Total Tax Savings:
  • The total immediate tax savings for the forklift under Section 179 is $5,250.
  • The total immediate tax savings for the forklift under Bonus Depreciation is $4,200.
  • The total immediate tax savings for the forklift is $9,450.  (37.8% of the purchase price)

Tax Savings Table for 2023*

DescriptionAmount (USD)Section 179Bonus DepreciationEstimated Tax Savings (USD)Forklift Purchase Cost$25,000$5,250$4,200$9,450Forklift Fleet Purchase Cost$1,160,000$243,600$194,880$438,480Given an estimated tax rate of 21%. Be sure and contact your professional tax advisor to see if you qualify.

More than one-third of the purchase price of the new forklift is paid for by potential tax savings.  If you take advantage of the maximum of $1,160,000, your potential tax savings is approximately $438,480.  That would be the equivalent of getting 17 to 18 new forklifts for free (given a $25,000 purchase price).

*The tax savings from bonus depreciation would depend on additional qualifying purchases and cannot be calculated without specific figures.

Frequently Asked Questions (FAQs)

What is Section 179?

It is a U.S. government incentive to stimulate the economy by rewarding businesses for purchasing equipment. Often new jobs are created when businesses are encouraged to invest in upgrading their equipment. There’s often a corresponding increase in wages and payroll taxes from the businesses manufacturing, selling, and using the equipment.

Can used equipment qualify for Section 179?

Yes, both new and used equipment can qualify, as long as the used equipment is new to your business and used predominantly for business purposes.

Is there a limit to the number of forklifts I can claim under Section 179

No, there is no specific limit on the number of forklifts; however, the total purchase amount must not exceed the set threshold for the tax year.

Can I claim Section 179 if I finance the forklift?

Yes, financing does not affect eligibility for Section 179. You can still claim the deduction even if you're making payments on the equipment.

Does taking the Section 179 deduction affect bonus depreciation?

Section 179 is typically taken first, and bonus depreciation is applied to any remaining balance. However, in 2023, if you've reached the Section 179 spending limit, you may be able to take an 80% bonus depreciation on new qualifying equipment.

What is the deadline for Section 179?

To qualify for the Section 179 Deduction, the equipment purchased or financed must be placed into service between January 1, 2023, and December 31, 2023.

Does all forklift and material handling equipment qualify for Section 179 deductions?

The IRS allows for Section 179 depreciation on tangible property, including forklifts, used in a business or income-producing activity. Your customers should see IRS Pub. 946 for more information and restrictions, and consult a tax advisor. For basic guidelines on what property in addition to forklift equipment is covered under the Section 179 tax code, please refer to the information at www.section179.org.

The Section 179 deduction in 2023 presents a significant tax advantage for businesses investing in forklifts and material-handling equipment. By fully utilizing this deduction, along with the available bonus depreciation, companies can achieve considerable tax savings, thereby reducing the overall cost of investment and supporting business growth.

At no time in the foreseeable future, will you be incentivized more to upgrade your existing equipment. Is your business poised to take full advantage of the Section 179 deduction? Send me an email or call 800-752-1882 if you want to see what equipment is available for purchase prior to year-end 2023.