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Create Your Own Tax Break in 2009

Did you know that congress extended the amount that small business may write-off for capital expenditures to $250,000?

 

Business owners who acquire equipment including machinery, computers, office cubicles, and other tangible goods, usually prefer a substantial deduction in a single tax year, rather than a little at a time over a number of years.  This accelerated deduction is known by its section in the tax code: a Section 179 deduction.  The 2009 law extends the amount of qualified property that a business can expense under Section 179 to $250,000.  This incentive is for equipment placed in service by December 31, 2009 and is designed for small companies, so the deduction phases out when a business purchases more than $800,000 in one year.

 

The law also maintains the bonus depreciation of 50% for qualifying assets.  This bonus is in addition to regular first-year depreciation.

 

The benefit of a Non-Tax/Capital Lease is that it can take advantage of Section 179:  expense up to $250,000 if the equipment is put in use in 2009.  In addition, you may depreciate any excess on the depreciation schedule for that asset.  Examples of Non-Tax/Capital Leases include a $1.00 Buyout, an Equipment Finance Agreement (EFA), and a 10% Purchase Upon Termination (PUT) Lease.  Example:  Assume you finance $300,000 worth of business equipment, put it in use in 2009, and take advantage of Section 179.  Your tax savings could be significant:

 

Equipment Cost Example:

$300,000

1st Year Write Off: $250,000

($250,000 is the max. Section 179 write-off in 2009)

 

50% Bonus Depreciation: $25,000

(On remaining value: $300,oo0 – $250,000 = $50,000 x 50% = $25,000)

 

Normal 1st Year Depreciation: $5,000

(Depreciation calculated at 5 years = 20%; $25,000 x 20% = $5,000)

 

Total 1st Year Deduction: $280,000

($250,000 + $25,000 + $5,000 = $280,000)

 

Tax Savings Assuming Rate of 35%: $98,000

($280,000 x .35 = $98,000)

 

1st Year Net Cost after Tax Savings: $202,ooo

($300,000 – $98,000 = $202,000)

 

The sample calculation shows how taking advantage of Section 179 can significantly lower the true cost of equipment ownership from $300,000 to $202,000.  For the specific impact to your company, please contact your tax advisor.  For the complete details, or changes to the tax incentives, visit www.irs.gov or contact the IRS helpline at: 800-829-4933.

 

To take advantage of the incentives and the substantial tax savings, your business equipment must be put in use by year-end.  2009 may be the year for you to get the modular office furniture, seating and updated phone system that you have been thinking about!