Tis the season…for investing in drone and UAV technology.
If you’re a small business that has been flirting with the idea of making some serious tech investments – like purchasing the equipment to launch your own drone/UAV program – but have been hesitant to go all in, now’s the time. Making some strategic moves before the end of the year can help you start 2022 on the right foot with new tech and significant savings. With Section 179 and bonus depreciation incentives, you can invest in your company while taking advantage of valuable tax breaks.
What are Section 179 and bonus depreciation tax incentives?
Both Section 179 and bonus depreciation allow small businesses to reduce their taxable income by claiming big upfront deductions on certain purchases. In lieu of the traditional method of capitalizing assets and claiming depreciation over several years, these incentives currently permit companies to claim the full expense in their first year of service.
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Section 179 - This deduction has a cap ($1,050,000 for 2021), but is also a little more flexible. You could choose to deduct a portion of costs upfront with Section 179 and then claim depreciation on the remainder of the cost over time. You must have a net positive income to take advantage of this deduction.
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Bonus Depreciation - When using bonus depreciation, a business must deduct 100% of the purchase price in the first year of service. However, unlike Section 179, there is no limit on how much you can claim in a year, and you can also use this benefit even if operating at a net loss.
Section 179 and Bonus Depreciation can apply to most new or used tangible business-related assets that your company buys outright, finances, or leases. The equipment must be put into service before the end of the year to be claimed on that year’s taxes. The goal of these incentives is to encourage small businesses to invest in themselves, hopefully boosting the economy on several fronts in the process.
What expenses qualify for Section 179 deductions and bonus depreciation?
Pretty much any tangible business expense can qualify, from computers and office furniture to machines and equipment to off-the-shelf software. Section 179 also covers some property improvements, like roofs or HVAC for your office. Of course, you’ll want to contact a tax professional to verify exactly which of your upcoming purchases will qualify.
If you’re looking to kick off your drone program, make sure you get all the equipment you need to succeed:
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Drones or UAVs
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Sensors and payloads (LIDAR, scanning lasers, thermal imaging, etc.)
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GPS equipment
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Inertial measurement units (IMUs) and flight stabilization components (accelerometers, gyroscopes, magnetometers, etc.)
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Accessories (memory cards, travel cases, spare batteries, charging hubs, etc.)
Also, don’t forget that in order to operate drones, training and certification is a must. Everyone that operates a UAV needs to be Part 107 certified by the FAA. Unfortunately, since training isn’t a tangible asset, it won’t be covered by Section 179 or bonus depreciation. However, the money you save by claiming the upfront deductions on your equipment can help you budget for these required certifications.
What if I’m not able to take advantage of Section 179 or bonus depreciation by the end of the year?
The end of the year will be here before you know it. With supply shortages and holiday shipping backups, it might be a little difficult to purchase everything you need and get your drone program up and running in order to be eligible for 2021 tax breaks. But don’t worry, now that you know, you can plan out your purchases to take full advantage of these deductions in 2022.
Provided your business meets the qualifications to use these benefits, you can claim expenses under Section 179 or bonus depreciation every year. Also, unless tax legislation changes, these incentives are here for at least the next few years. However, per the current legislation, the first-year bonus depreciation percentage is set to begin decreasing in 2023 as it is phased down.
Also, keep in mind that if you have equipment that you’ve already purchased but is sitting unopened, you still might have time to get it in service before the end of the year. Then, you could still claim this previous expense as a deduction on your 2021 taxes!
Tax incentives are great, but upfront costs aren’t the only hurdles of starting a drone program…what about data processing?
Just because you have all of the equipment to collect your own drone data doesn’t mean the challenges stop there. Certain software (which might be covered under Section 179 or bonus depreciation) could help you sort through all of the data, but there’s still going to be a lot of training and a steep learning curve involved.
Consider looking into outside help for data processing. Going to experts – at least initially – can allow you to get immediate benefit out of your equipment while you figure out the logistics of in-house data management and deliverables. Or, you might find outsourcing so efficient and convenient that you continue down that path.
Contact your tax professional to get the full run-down on Section 179 and bonus depreciation and to see if they make sense for your business, especially when it comes to big investments, like the tech for your own drone program. Also, remember that while these provisions can help you save on equipment, things like training, maintenance, and data processing are still costs and logistics that will need to be addressed. Doing your research and getting a good plan in place will help you make the most of your program.
Don’t let the fear of data processing get in the way of the excitement and opportunities a drone/UAV program can bring to your business.
Contact AirWorks to find out how autonomous drafting and AI data processing can help you maximize the output from your program once you’ve purchased your equipment and are ready to start collecting data and creating deliverables.