By Laura Desmond

Businesses of all sizes are looking for financial incentives to increase their revenue base. For billboard operators who want to increase their digital advertising reach, the 2017 tax reform package offers big reasons to expand.

The latest tax reform package was signed into law on December 22, 2017 and gives tax deductions on depreciations for businesses that purchase qualifying equipment, which includes LED displays. Understanding Section 179 is not as difficult as you might think. This legislation can provide potential tax savings for many businesses.

Prior to the introduction of Section 179 benefits, businesses could write off depreciation over time on new equipment or qualifying purchases. The newest tax reform rules increase the maximum cap for taking the Section 179 deduction from $500,000 (in 2016) to $1,000,000 beginning in 2017. The price of an average digital billboard is a significant investment, but if an operator chooses wisely and plans ahead, that initial cost can yield years of reliable service in the field, and an equally significant return on that investment.

Here’s how this translates to savings for your company. Let’s say you invest $500,000 in new digital billboards in 2018. Your total first year deduction is the full amount — $500,000. Assuming a 32 percent tax bracket, this would give you a cash savings of $160,000 and effectively lower the cost of your investment to $340,000.

In another scenario, an investment of $1,100,000 would still allow you to deduct the entire depreciation up front. The first deduction of $1 million would come through the standard Section 179 depreciation and the remaining $100,000 would be deducted at 100 percent of its value through the Special Depreciation. Again, assuming a 32 percent tax bracket, this would give you a cash savings of $352,000 and effectively lower the cost of your investment to $748,000.

The newest tax reform reinforces the permanence of Section 179, so the $1,000,000 cap is now also permanent. Section 179 allows businesses to write off the entire amount, up to the $1,000,000 cap, for the tax year in which they purchase, lease or finance the equipment and put it into service. For equipment valued over $1,000,000, the Section 179 depreciation deduction is reduced — dollar for dollar — until it is completely eliminated at $2.5 million.

The additional good news is that once the initial cap of $1,000,000 is met, there is a Special Depreciation available for a limited time. Available until the 2022 tax year, the additional Special Depreciation allows businesses to depreciate an additional 100 percent of the second $1,000,000 spent on equipment that has been acquired and put into service. After 2022, the Special Depreciation phases down 20 percent each year before disappearing at the end of the 2026 tax year. Prior to the 2017 tax year, businesses could only claim a Special Depreciation of 50 percent.

To qualify for the Section 179 Deduction, new displays must be purchased, leased or financed and placed into service between January 1 and December 31 to be deducted for that tax year. For basic guidelines on what purchases are covered under the Section 179 tax code, visit the IRS website on Section 179 qualifying purchases (How To Depreciate Property).

Keep in mind that while the Section 179 Deduction is permanent, the Special Depreciation does have a limited shelf life. For businesses interested in significant expansion, planning in accordance with both depreciation deductions will potentially save thousands at tax time.

Because these deductions are taken up front, it is possible for a company’s tax savings to exceed the first year’s payments on a display that is leased or financed, particularly if they are also eligible for the Special Depreciation. This is perfectly legal and gives tangible benefits to growing small and medium-sized businesses. Top manufacturers in the LED outdoor display industry can offer complete financing and reliability guarantees that partner nicely with these tax benefits to maximize ROI on new digital billboards. Section179.org has a useful Section 179 Deduction Calculator that illustrates possible deduction amounts.

For more information on how Section 179 deductions affect your business taxes, you should consult your tax professional.