Tax Code Section 179 allows small and medium sized business owners who acquire essential use equipment to deduct the entire equipment cost in a single tax year. Thanks to the Tax Relief Act of 2010 this accelerated method of depreciation far outweighs in benefits the traditional method of incremental tax deductions based on complicated depreciation schedules of the assets acquired.
This incentive applies to the purchase of essential use equipment including machinery, computers, and other tangible goods, placed in service by December 31, 2012. The single year accelerated deduction under Tax Code Section 179 is capped at $139,000 for 2012, and transitions into a “Bonus Depreciation” model thereafter. The law allows for asset purchases that exceed the $139,000 limit to be written off at a reduced 50% Bonus Depreciation rate on qualified assets. However, there is a dollar for dollar phase-out as the yearly asset acquisitions surpasses the hard ceiling of $560,000.
When the total yearly equipment acquisition for the company does not exceed the 2012 Section 179 limit of $139,000 the Example 1 above shows how the accelerated depreciation affects the equipment cost after tax savings. The equipment cost residing below the Section 179 threshold allows 100% of the equipment cost to be deducted this year.
When the total yearly equipment acquisition exceeds the standard Section 179 limit of $139,000, but does not exceed the ceiling of $560,000, the above example shows how the bonus depreciation affects the equipment cost after tax savings. The equipment cost in excess of the $139,000 is allowed by law for qualifying equipment to be depreciated by 50% coupled with normal depreciation rules according to MACRS.
When the yearly equipment acquisition for the company exceeds the full benefit ceiling of $560,000, the Section 179 tax deduction reduces dollar for dollar thereafter. The above example illustrates how the Section 179 deduction is reduced by $10,000 as the total equipment acquisition exceeds the $560,000 ceiling by the same amount.
To take advantage of the incentives and the substantial tax savings, your business equipment must be put to use by year-end. Interested in learning more? We’ll provide you with a free consultation and extend financing solutions so you can acquire the business equipment you need.
Taycor Financial has created a free and easy to use tax savings calculator. Learn more about how the Section 179 accelerated depreciation can greatly reduce the cost of your equipment. With our innovative leasing and financing structures you can reap the full benefits of the deduction with a single monthly payment. The allowance of the deduction made through Tax Code Section 179 is scheduled to greatly reduce at the end of the year.
The election, which is made on Form 4562, is for the tax year the property was placed in service or an amended return filed within the time prescribed by law. The total cost of property that may be expensed for any tax year cannot exceed the total amount of taxable income during the tax year. Section 179 property is property that you acquire by purchase for use in the active conduct of your business. To ensure property qualifies, reference Publication 946. Contact your tax advisor for further detail or visit www.irs.gov for specific detail.