In the competitive world of manufacturing, staying ahead of the curve is crucial for success. Having the most efficient and up-to-date equipment can mean the difference between making a profit or losing ground to competitors. But acquiring new equipment can be a significant investment. This is where Section 179 of the U.S. tax code comes in.

Section 179 is a powerful tax incentive that allows manufacturers to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. This can provide a significant tax savings, improving cash flow, and freeing up capital to invest in other areas of your business, such as research and development, marketing, or hiring new employees.

What Qualifies for the Section 179 Deduction?

Not all equipment qualifies for the Section 179 deduction. To qualify, the equipment must be:

• Tangible property: This means it must be property like machinery, robotic workcells, or software, not intangible property like intellectual property.
• Used in the business: The equipment must be used for business purposes, not personal use.
• Placed in service before the end of the tax year: The equipment must be operational and ready for use by the end of the tax year.

Here are some examples of equipment that typically qualifies for the Section 179 deduction for manufacturers:

• Machinery and automation equipment used in the production process
• Computers and software used in design, engineering, and production planning
• Office furniture and fixtures
• Vehicles used for business purposes, such as trucks and vans

How Much Can You Save with Section 179?

The amount you can save with Section 179 depends on the total cost of qualifying equipment you purchase or finance in a given tax year. In 2024, the maximum deduction is $1,220,000, with a phase-out limitation beginning at $3,050,000 of qualifying equipment purchases. This means that the deduction amount starts to decrease once the total cost of qualifying equipment exceeds $3,050,000.

For example, let's say you purchase a new robotic workcell for your manufacturing business for $75,000. If this equipment qualifies for Section 179, the true cost of the equipment, whether purchased, financed, or leased, drops to $48,750. That’s a significant savings of $26,250!

Steps to Take Advantage of Section 179

To take advantage of the Section 179 deduction, follow these steps:

1. Familiarize yourself with the eligibility requirements. Make sure the equipment you are planning to purchase qualifies for the deduction. You can find more information on the IRS website or consult with a tax advisor.
2. Keep good records. Maintain detailed records of your equipment purchases, including invoices, receipts, and specifications.
3. Claim the deduction on your tax return. When filing your tax return, be sure to claim the Section 179 deduction for your qualifying equipment purchases. You can use Form 4562, Depreciation and Amortization, to claim the deduction.

Additional Considerations

There are a few additional things to keep in mind when considering Section 179:

• The deduction is subject to change. The provisions of Section 179 can change from year to year. It is important to stay up-to-date on the latest rules and limitations.
• Consult with a tax advisor. Section 179 can be a complex tax provision. It is always best to consult with a tax advisor to ensure you are taking advantage of the deduction properly and to determine if it makes sense for your specific tax situation.

Section 179 is a valuable tax incentive that can provide significant financial benefits for manufacturing businesses. By understanding the eligibility requirements and taking the necessary steps to claim the deduction, you can free up capital to invest in your business and stay ahead of the competition.

State Programs

In addition to the Federal Section 179 program, many states offer additional programs to support small and medium-sized manufacturers. 

For example, manufacturers in New Jersey might be eligible for financial assistance from the New Jersey Economic Development Authority (NJEDA). The NJEDA offers two programs that can help you improve your business:

• Small Business Improvement Grant provides reimbursement for costs associated with making building improvements or purchasing new furniture, fixtures, and equipment.
• New Jersey Manufacturing Voucher Program (NJ MVP) provides grants to New Jersey manufacturers to help them purchase new equipment.

These programs can help to:

• Improve your productivity
• Expand your operations
• Create new jobs

NJEDA Small Business Improvement Grant

This grant program is available to small businesses and nonprofits that meet certain criteria, such as minimum project cost, location, and business type. It awards 50% of eligible total project costs up to $50,000, for projects completed within the past two years prior to the application date.

You can find more information about the eligibility requirements, award size, and how to apply for the grant on the NJEDA website. 

New Jersey Manufacturing Voucher Program

This grant program is available to New Jersey manufacturers. It provides reimbursement equipment grants sized at 30% to 50% of the cost of the eligible equipment (including installation), up to a maximum award amount of $250,000. Eligible equipment includes any form of manufacturing equipment, technologically advanced equipment or production/operating systems, including but not limited to robotics, additive manufacturing, hardware or software for digital twinning, advanced sensor or control systems, IIoT (interconnected sensors, instruments, and other devices networked together with computers’ industrial applications) systems and related security.

The program also offers stackable 5% bonuses for: 

• Equipment is installed in a location within an Opportunity Zone Eligible Census Tract
• Certified Woman, Minority, and Veteran Owned Businesses (WMVB)
• At least one Collective Bargaining Agreement in place
• Manufacturers with fifty (50) or less FTE’s

Applications will be accepted on a rolling basis and remain open until all funds are committed.

There’s one important caveat for eligible projects: Applicants must be seeking assistance for a project they are actively contemplating but have yet to commit to. Projects where a contract has been signed, a Purchase Order placed, a deposit made in advance or previously purchased equipment prior to an Approved NJ MVP application, will not be eligible for this program.

You can find more information about the eligibility requirements, award sizes, and how to apply for the program on the NJEDA MVP program website.

Not in New Jersey? Be sure to check with your respective state’s Economic Development Authority for similar programs, as well as your local MEP.

Working with Cohesive Robotics

Don't miss out on these opportunities to receive financial assistance for your business and boost your production with robotic workcells like ours. Our team of experts has experience in securing state grants and can support your application with required documentation. Get in touch with us today.

Disclaimer: The information and tools provided on this page are for informational purposes only and should not be used as tax advice. We recommend consulting with a qualified tax professional before making any decisions based on this information. 

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