Most HDD market observers agree: 2017 saw an HDD market stabilizing from a turbulent 2016. Some niche segments—notably, telecom and fiber-optic market segments—recorded strong work backlogs, with gas/oil markets returning—albeit slowly.

To read about how some observers viewed the HDD market, click here.

An improving HDD market produced two notable trends:

• Stronger cash flows, with higher net income; and
• Shift in demand to small- and mid-size rigs/tooling

As in previous years, the Section 179 deduction is available to contractors who purchase used equipment.

Using Section 179 to write off the replacement of pricey worn tooling is a common strategy for many contractors.

Deduct 100% of the Cost of Used and New Equipment

Both of these trends have, in turn, created an urgency to identify tax reduction strategies, and to purchase rigs and equipment better aligned with the specific needs of telecom markets. The good news is there is a single tool that addresses both trends simultaneously:

• Section 179 Deduction

Targeting small- and mid-sized businesses, Section 179 is designed to ease the burden of new and used capital equipment purchased and put into service between January 1, 2017, and December 31, 2017.

Section 179 allows businesses to deduct the FULL purchase price of qualifying equipment—up to $500,000—from their gross income. In a year where many contractors benefitted from expansion in HDD jobs, this deduction can play a significant role in reducing tax exposure.

The IRS has an expansive website covering Section 179 here. Other planning resources, including what equipment purchases qualify, can be found here.  A really helpful calculator can be found here.

Of course, any serious planning should be done with a tax advisor who is familiar with the construction industry and its regulations.

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