Deadline for Machine Tool Tax Write-off Approaching

Smooth Installation Process Critical

If you’re a small-to-midsize machine shop owner, you might not always have enough cash on hand to purchase the CNC machine you need – or the machine you want. That quality machine or automation cell that will boost your throughput, accuracy, or precision might end up costing you more than you thought.

Brace yourselves, shop owners; this might come as a surprise: the government can help.

This year, section 179 of the internal revenue code allows business owners to expense up to $1.05 million on work-related equipment, including machine tools. The deduction is applied to your tax return, and the amount generally increases annually with inflation. It can save you more money at the outset, rather than depreciating machinery over several years.

This article serves as a brief overview of section 179 and bonus depreciation.

Before getting into the details, you should consult with a tax or financial professional regarding tax incentives and financial decisions. This article assumes you’ve discussed your options with a tax/financial professional, and qualify for section 179.

You can disperse that $1.05 million deduction amount throughout multiple machines or automation systems. The deduction threshold is $2.62 million. If you claim a section 179 deduction that exceeds that threshold, the deduction decreases dollar-for-dollar.

There are a few stipulations, the most important of which is the deadline. To claim a section 179 deduction, you need to have the machine tool installed and up and running by the end of the year.

You can take a section 179 deduction in subsequent years, but if the qualifying equipment is not placed in service until after the year-end, just a few days can delay the deduction by a whole tax year.

Such equipment may separately qualify for 100% bonus depreciation instead, where there is no annual limit.  For bonus depreciation, the asset still needs to be placed in service in the tax year. It is due to be phased out starting in 2023. Individual circumstances are different, so seek tax advice from your CPA, tax, or financial advisor for eligibility.

IRS data show companies are claiming a greater amount of money through the section 179 deduction. And, with that deadline on the horizon and hundreds of thousands of dollars on the line, you need to be able to rely on your machine tool supplier for quick delivery and flawless service.

That’s where people like James Goodwin shine.

He’s been working with machine tools for years, the last 17 at Methods Machine Tools as a service coordinator. Throughout his expansive career, he’s learned what goes into a successful installation. And, there are a few things that separate Methods’ from other machine tool suppliers.

“One of the biggest things we have going for us is our warehouse in Sudbury,” he said. “We do a lot of option installs here, and if something isn’t quite up to par, we can always come back to the warehouse and get what we need to meet the customer’s specific requirements.”

Shop owners have an active role during the process, too, Goodwin said. Before a service coordinator arrives, the work area must be clean, readily accessible, and near an electrical outlet.

The number of options and intricacies with each generation of machine tools can sometimes complicate matters. Once your supplier installs a machine, you still need to become familiar with your options and upgrades.

“Like cars, every year there’s new options,” Goodwin said. “Our service coordinators are pretty familiar with every machine, we take the time to walk them through some of the changes, which can go a long way.”

Methods’ imports and customizes machine tools. The company has technicians from each builder stationed at its headquarters in Sudbury, Mass. Having those resources just a phone call away gives Methods’ customers and service coordinators a direct link to some of the industry’s most in-depth machine tool knowledge.

“We have factory support right here to help us,” Goodwin said. “A lot of other companies don’t have that, so they have to contact the factory and wait for them to send a guy. Here, we are the guys.”

Sometimes, one of the most complex parts of getting a machine installed in time is the financing. You need to own or finance a machine tool or automation cell to claim the section 179 deduction. Methods has experience on that front, too, helping shop owners navigate the labyrinth-like world of machine tool finance.

“We work with a network of lenders who want to see your shop succeed,” said Matthew Sheehan, Methods’ Director of Finance. “Our goal is to help you get the machine that’s right for your shop, whether you’re looking to expand out of your garage or fill a warehouse with high-end equipment.”

Methods Machine Tools imports, customizes, and distributes machine tools and automation systems. This is not legal, tax, or financial advice; we do not offer those services. We encourage you to consult with a tax or financial advisor regarding all tax incentives and financial decisions.