Section 179 Deduction and Leasing: A Powerful Tax Strategy for Maryland Businesses

For small and medium-sized business (SMB) leaders in Maryland, the end of the year brings a familiar challenge: balancing the urgent need for growth with the prudent management of capital. Growth requires investment. This often means upgrading critical business assets—from the multifunction copiers and IT infrastructure that run your office to the heavy machinery or vehicles that get the job done. The roadblock, however, is often the significant cash outlay required for these capital expenditures. Many C-level executives and decision-makers believe they face a difficult choice: drain precious working capital by purchasing equipment outright or sign a simple lease that offers low payments but limited tax advantages.

Fortunately, this is a false dilemma. A powerful, and often underutilized, financial strategy exists that provides the best of both worlds: the immediate, massive tax deduction of a full purchase combined with the cash-flow preservation of a lease. This strategy is the one-two punch of the Section 179 deduction and a capital equipment lease.

Understanding how to leverage these two tools together can fundamentally change your financial planning for this year and the next. Instead of a $50,000 capital expense draining your bank account, you can acquire that same equipment for a low monthly payment and still deduct the entire $50,000 from your business's taxable income in the current year. For a Maryland business looking to gain a competitive edge, this isn't just a minor tax break; it's a strategic accelerator for growth.

What is Section 179? A Plain-English Guide for Business Leaders

Before combining it with leasing, it's essential to understand what Section 179 of the IRS tax code is and why it's so beneficial for businesses.

The Old Way: Slow, Multi-Year Depreciation

In the past, when your business purchased a significant asset, you couldn't deduct its entire cost in the year you bought it. Instead, you had to "capitalize" it and recover the cost slowly over several years through a process called depreciation.

For example, let's say you bought a new server and IT hardware package for $50,000. Under a typical depreciation schedule (like MACRS), the IRS might classify this as 5-year property. This means you would only get to deduct a fraction of its cost each year—perhaps $10,000 in the first year. Your tax benefit would be small and spread out, and your cash flow would still take the full $50,000 hit upfront.

The Section 179 Way: Immediate, Full-Cost Deduction

Section 179 was created specifically to help small and medium-sized businesses overcome this hurdle. It is a tax incentive, not a loophole, designed to encourage you to invest in your own company.

At its core, Section 179 allows your business to elect to treat the full purchase price of qualifying equipment as an immediate expense.

Let's revisit that $50,000 equipment purchase. By electing to use Section 179, you can deduct the entire $50,000 from your gross income in the same tax year the equipment is "placed in service" (i.e., installed and put to use). The impact is immediate and significant. If your business is in a 25% tax bracket, a $50,000 deduction translates to $12,500 in direct tax savings—cash that stays in your company this year.

The "Powerful Strategy": Why Leasing Amplifies Section 179

This is where the strategy becomes truly transformative for decision-makers. A common myth is that to claim the Section 179 deduction, you must have paid cash for the asset. This is incorrect. The IRS code allows you to take the full deduction on equipment that is financed or leased.

This single provision creates the "best of both worlds" scenario.

Understanding Qualifying Leases (Capital vs. Operating)

This strategy hinges on using the right kind of lease. It's crucial to distinguish between two main types:

1. Operating Leases: This is a true "rental." You use the equipment for a set term and then return it. For tax purposes, you simply deduct your monthly lease payments as a regular operating expense. You cannot claim Section 179 on an operating lease.

2. Capital Leases (or "Finance Leases"): This type of lease is structured as a financed purchase. The IRS views it as if you are buying the equipment and someone is loaning you the money. These leases, which often feature a $1 buyout option at the end of the term, fully qualify for the Section 179 deduction.

The Cash-Flow-Positive Scenario

Let's illustrate the power of combining Section 179 with a capital lease.

Imagine your Maryland-based company needs a new, high-production multifunction copier and document management system valued at $75,000.

• Option 1: Pay Cash. You write a check for $75,000. Your cash reserves take a massive hit, limiting your ability to fund payroll, marketing, or other opportunities. You take the $75,000 Section 179 deduction and, assuming a 25% tax bracket, get $18,750 in tax savings. Your net cash outlay is still $56,250.

• Option 2: The Strategic Lease. You contact a provider like C&C Office Solutions and secure a capital lease for the $75,000 system. Your upfront cost is minimal (perhaps the first and last month's payment). Your $75,000 in working capital remains safe in your bank account, earning interest or funding growth.

  
  

  • And here's the magic: Because it's a capital lease, you still get to elect Section 179 and deduct the full $75,000 from this year's income.

  • The $18,750 in tax savings you receive can be greater than your total lease payments for the entire first year. You have not only preserved your capital, but you may have also created a cash-flow-positive acquisition.

This strategy allows you to acquire the growth-enabling assets you need now without ever sacrificing your financial liquidity.

Core Benefits of Section 179 for Your Business

Beyond the powerful leasing synergy, the Section 179 incentive offers several other key benefits for business leaders.

Benefit 1: Flexibility for New and Used Assets

Section 179 is not limited to brand-new equipment. The deduction can be claimed on both new and "new-to-you" (used) equipment. This is a massive advantage for SMBs. You can acquire a certified, pre-owned piece of machinery, a refurbished IT system, or an off-lease vehicle and still be eligible to deduct 100% of the purchase price.

Benefit 2: Strategic Tax Planning Control

Unlike some other depreciation methods, Section 179 is an election. This gives you and your financial team incredible flexibility. You don't have to take the full deduction if it's not advantageous. For example, perhaps you only need to deduct $30,000 of a $50,000 purchase to bring your taxable income down to a lower tax bracket. You can elect to deduct just that $30,000 and depreciate the remaining $20,000 normally. This level of control allows for precise, strategic tax planning.

What Decision-Makers Need to Know: The 2025 Rules

To use this strategy, you must be aware of the official IRS limitations. These limits are indexed for inflation and are very generous for most small and medium-sized businesses.

The 2025 Deduction Limit: $1,250,000

For the 2025 tax year, the maximum amount you can elect to deduct under Section 179 is $1,250,000. (This is an increase from $1,220,000 in 2024).

The 2025 Spending Cap (Phase-Out): $3,130,000

This is what truly makes Section 179 an SMB incentive. Your deduction begins to phase out (reduce) dollar-for-dollar once your total qualifying equipment purchases for the year exceed $3,130,000. (Up from $3,050,000 in 2024). Once your purchases exceed $4,380,000, the deduction is eliminated entirely.

The Business Income Limitation

There is one key rule: the Section 179 deduction cannot exceed your business's net taxable income for the year. In other words, you cannot use Section 179 to create a net operating loss. However, if any portion of your deduction is disallowed due to this limit, that amount can be carried forward to the following tax year.

The "Placed in Service" Deadline

This is the most critical action item. To claim the deduction on your 2025 tax return, the qualifying equipment must be purchased (or leased) and placed in service by midnight, December 31, 2025. You cannot simply buy it and leave it in a box. It must be installed and operational, which is why end-of-year planning must begin now.

Put Your Strategy in Motion with C&C Office Solutions

For Maryland business leaders, the combination of a capital lease and the Section 179 deduction is the most powerful tool available for acquiring essential technology while maximizing financial health. It transforms a major capital expense into a strategic, cash-flow-positive investment.

But this strategy requires two things: the right equipment and the right lease.

That is where C&C Office Solutions comes in. We provide the essential office technology—from multifunction copiers and printers to IT hardware and document management systems—that qualifies for the Section 179 deduction. More importantly, we can work with you to structure a qualifying capital lease that aligns with your financial goals.

***** Disclaimer: C&C Office Solutions is not a tax advisor. Please consult with your tax professional or CPA to confirm how Section 179 and qualifying leases apply to your specific financial situation.

Ready to upgrade your office technology and optimize your 2025 tax strategy? To learn more about qualifying equipment and leasing options that unlock the full power of Section 179, contact C&C Office Solutions today. Let us help you equip your Maryland business for growth.

Sources

• Internal Revenue Service (IRS): Publication 946, How To Depreciate Property.

• Internal Revenue Service (IRS): Instructions for Form 4562, Depreciation and Amortization.

• 26 U.S. Code § 179: Election to expense certain depreciable business assets.

• Secondary Analysis from financial platforms such as NerdWallet and Bankrate.