Try a Section 179 Tax Deduction

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The law lets you write off the full purchase price of equipment bought or leased during 2010.  If you need new equipment, now’s the time to buy.

If you prefer a hot-fudge sundae to a punch in the nose, you’re probably the type of person who’d rather buy new equipment than send money to the IRS.  If so, now is the time to take advantage of Section 179 of the revised IRS Code.

Designed to encourage small- and mid-sized companies to invest in themselves and stimulate commerce, Section 179 allows businesses to depreciate the entire equipment purchase price for the year it was bought.  Previously, companies had to write off the cost over the course of five years.

By helping to maximize purchasing power, the feds hope that small firms will immediately invest in more equipment instead of praying for sunnier economic skies. The new law can also help businesses free their cash for other purposes.

Naturally, every silver lining has a cloud.  The amount that can be fully deducted is capped now at $500,000 with the passage of the new small business lending bill, and the amount of equipment purchased must total less than $800,000.  Beyond the $500,000 total, the deduction is gradually phased out.  And if equipment costs more than $800,000, companies must depreciate the assets over time.

In addition, leased or purchased equipment must be used for business purposes more than 50% of the time.  In general, qualifying property includes:

  • Computers and software.
  • Tangible personal property (used for the business).
  • Business vehicles weighing more than 6,000 pounds – the deduction is often called “The SUV Tax Loophole,” though that SUV better cost less than $25k.
  • Office furniture and equipment.
  • Property attached to your building that isn’t an integral structural element, such as machines and large manufacturing tools.

Consult your tax preparer if you’re not sure whether specific property qualifies.

Non-qualifying property includes: real estate, air conditioning and heating equipment; property used to provide lodging; property located outside the U.S.; gifts and inheritances; and items that aren’t usually considered tangible personal property.

Thanks to the $800,000 limit on qualifying assets, this is truly a small-business tax incentive, which is why The Wall Street Journal calls it one of the best breaks for 2010.

Are you planning to take advantage of this tax break before year’s end?

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