Tax Saving Strategies for Your Photo Booth Rental Business with Section 179
Growing your photo booth rental business through the purchase of new equipment can seem like a tiring and expensive process; however, there are tax breaks implemented by the IRS to ease this burden.
The Section 179 Deduction is available for small and large businesses, providing an effective way to reduce taxable income and purchase much needed equipment.
To take advantage of the Section 179 Deduction for your photo booth rental business, you will first need to understand what the deduction is, the benefits and how to claim the deduction while financing the equipment.
What is the Section 179 Deduction?
The Section 179 Deduction, frequently referred to as S179, is an election that allows business owners to write off the entire cost of the asset in the year it was placed in service.
Generally, businesses are required to depreciation photo booth rental equipment over 7 years, providing a reduction of taxable income for each of the next 7 years. However, by electing S179, your business can expense the entire cost of the asset in the same year, significantly reducing your taxable income.
However, your business does need to have income to take this deduction. If your photo booth rental business is showing a loss before S179, you cannot take the deduction and instead should consider taking Bonus Depreciation.
What are the Qualifications and Deduction Limitations?
To qualify for the deduction, the equipment must be eligible property, acquired for business use, and not bought through an asset sale (IRS). Most, if not all, photo booth rental equipment qualifies for the deduction.
For 2022, the maximum S179 limit is $1,080,000 with a dollar-for-dollar phaseout after $2,700,000 of assets are purchased. The high limit guarantees that most small and medium-sized photo booth rental businesses will be able to take advantage of the immediate deduction for all equipment purchased. Like all other depreciation, this deduction will be claimed on Form 4562 on your individual or business return.
What are the Benefits for My Photo Booth Rental Business?
Photo booth rental businesses see added benefits from taking the S179 Deduction. The first benefit comes in the form of tax savings. Your taxable business income will be significantly reduced when you claim this deduction. Let’s say you have $10,000 of income from your photo booth rental business and you purchased a new 360 Photo Booth from Revospin for $2,500. Your taxable income would decrease by 25%, giving access to immediate tax savings. The immediate tax deduction is especially important in years with high tax rates and as your business continues to grow.
Moreover, the tax break makes purchasing new photo booth rental equipment an easy decision. New photo booth rental equipment is constantly popping up on the market, making it a necessity to purchase these new pieces of equipment to remain competitive. Being one of the first businesses to have trending photo booth equipment not only maintains but also increases your market share and consumer demand.
Another added benefit of the S179 Deduction is that it allows your photo booth rental business to continue to grow all while saving you money on the tax bill each year. Many photo booth rental businesses see a high level of positive growth when money is reinvested back into the company in the form of efficient equipment. If you currently only have one piece of equipment, adding another can double your potential income all while reducing your taxable income, creating a win-win situation.
Can I Still Take S179 If I Finance My Equipment?
Many photo booth rental businesses get confused on if the S179 Deduction is available if the equipment is financed. Simply put, yes, you can still take the S179 Deduction regardless of the purchase method. The IRS does not stipulate that the equipment needs to be purchased outright to qualify; however, the new piece of equipment does need to be placed in service by year-end to be eligible. You don’t need to have booked the new piece of photo booth equipment, but it does need to be available for booking.
Financing equipment through a reliable partner, such as Clicklease, is actually recommended for many small businesses. New businesses often don’t have the capital required to purchase new equipment outright. Effective cash flow policies are grounded on maintaining a steady cash level, which financing equipment can help with. Instead of taking a major hit to the cash account or foregoing the equipment altogether, you can reach out to the lending experts at Clicklease to finance the equipment and take full advantage of the S79 Deduction.
Equipment financing not only allows your business to purchase much needed equipment, but it also gives your business stronger controls over fixed costs. When you finance your photo booth equipment, you will be given a repayment schedule with fixed payments. Having a fixed repayment schedule leads to stronger cash flow policies since you know exactly how much you will need to pay each month.
Additionally, any interest charged qualifies as a business deduction, further reducing your taxable income. In most cases, the interest you are charged is a small price to pay for adding efficient equipment and promoting growth to your photo booth rental business.
Next Steps
The Section 179 Deduction offers a wide variety of advantages for photo booth rental business owners. From reducing taxable income to providing your business with the tools to grow, purchasing new equipment should be considered regardless of business size.
Whether you have the funds to pay for new equipment outright or are interested in equipment financing through a qualified lender, like Clicklease, the Section 179 Deduction is important to take advantage of. As of right now, the Section 179 Deduction is only in place through 2027, meaning there has never been a better time to purchase new equipment.
Reach out to RevoSpin today to get started putting together a customized equipment package to start realizing the benefits new equipment can provide your photo booth rental business.
Sources
IRS. “Publication 946 (2021), How to Depreciate Property.” IRS, 7 March 2022, https://www.irs.gov/publications/p946#idm140613529486176. Accessed 16 April 2022.