Launched only 2 years ago, Standout has rapidly become a top online hub for stylish and sustainable clothing and accessories. Their affordable luxury fashion makes it easy for consumers to create socially conscious wardrobes. To support their rapid growth, founders Sara and Alex enlisted United Tax's assistance to reduce tax obligations and increase operating capital.
In addition to tax preparation, United Tax handled day-to-day bookkeeping for Standout. By maintaining detailed financial records in-house, our team gained comprehensive visibility into equipment purchases, operating expenses, and other transactions. This bookkeeping enabled us to pinpoint every qualifying asset for the Section 179 deduction while also accumulating the data needed to maximize start-up cost deductions.
The Section 179 deduction allows businesses to fully expense the cost of qualifying equipment and software purchases in the year the assets are placed in service, rather than depreciating the costs over time. Eligible property includes tangible goods like machinery, vehicles, computers, furniture, and appliances used primarily for business purposes. A company can deduct up to the maximum annual Section 179 limit (currently $1,080,000 for 2022) on qualifying asset additions each tax year. This accelerated expensing deduction enables an immediate tax savings versus slower depreciation deductions spread over 3-7 years. Section 179 is especially beneficial for new companies investing heavily in equipment.
Maximizing Section 179 Tax Deductions
To scale up fulfillment operations, Standout invested in equipment, a business vehicle, and management software. Our team performed an in-depth analysis of these purchases to determine their eligibility for the Section 179 deduction.
In total, over $126,000 of assets qualified for full expensing under Section 179 rather than slower depreciation over time. Expensing these assets provided an immediate tax deduction while simplifying future depreciation schedules.
At Standout’s tax rate, the $126,000 Section 179 deduction yielded over $26,000 in total tax savings this year.
Deducting Start-Up Costs
In conjunction with Standout’s tax returns, United Tax performed an in-depth assessment of costs incurred during the pre-launch start-up phase totaling nearly $125,000.
Categories of startup costs included research, strategy consulting, website development, legal fees, logo design, prototyping, and pre-launch advertising.
The IRS permits an upfront deduction of the initial $5,000 in startup expenses, while the rest is spread out over 180 months. Amortizing the $120,000 over 15 years generated an ongoing $8,000 deduction to further reduce taxable income down the road.
The Total Benefit - Utilizing Section 179 and Startup Tax Deductions
Altogether, the Section 179 deductions, and startup cost amortization and saved Standout more than $30,000 in year one taxes. Additional ongoing deductions will further benefit the company for years to come. In addition to the initial planning and tax preparation, United Tax provides Standout with quarterly estimated tax projections and ensures all required estimated payments are made on time. Ongoing support provides crucial peace of mind as the company continues its growth.
At United Tax, we regularly collaborate with leading e-commerce disruptors and technology-powered retailers to implement forward-thinking tax strategies tailored for high-growth companies. If maximizing working capital for continued innovation and expansion is crucial, we have the specialized experience to strengthen your tax posture. Please contact our advisors to schedule a working session focused on minimizing tax liabilities while enabling investment to set your young company up for success.
