Section 179 Decoded

Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income.

The purpose behind Section 179 - to motivate the American economy (and your business) to move in a positive direction. For most businesses (adding total equipment, software, and vehicles totaling less than $139,000 in 2012), the entire cost can be written-off on the 2012 tax return.

The total amount written off ($139,000 in 2012), and limits to the total amount of the equipment purchased ($560,000 in 2012). The deduction begins to phase out dollar-for-dollar after $560,000 is spent.

All businesses that purchase, finance, and/or lease less than $560,000 in new or used business equipment during tax year 2012 should qualify for the Section 179 Deduction. If a business is unprofitable in 2012, and has no taxable income to use the deduction, that business can elect to use 50% Bonus Depreciation and carry-forward to a year when the business is profitable.

The most important difference is both new and used equipment qualify for the Section 179 Deduction. Bonus Depreciation covers new equipment only. 

The equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for Section 179.

2012 Deduction Limit = $139,000 For new and used equipment, as well as off-the-shelf software.

2012 Limit on equipment purchases = $560,000 This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced.

Bonus Depreciation = 50% This is taken after the $560k limit in capital equipment purchases is reached.   Bonus Depreciation is available for new equipment only. Bonus Depreciation can also be taken by businesses that will have net operating losses in 2012.

Contact us for a bid on your capital purchase before year end.   Don’t miss out on Section 179 deductions and Bonus Depreciation 801 816 0800

Bonus Depreciation For 2012

Using Section 179 and/or Bonus Depreciation with an Equipment Lease or Equipment Finance Agreement might be the most profitable decision you make in 2012.

Why? Because the amount you deduct will exceed your cash outlay for 2012 when you combine (i) a properly structured Equipment Lease or Equipment Finance Agreement with (ii) a full Section 179 deduction. It is a bottom-line enhancing tool (plus, you get the new equipment and software you're adding to your business).

Also, the '$179 bonus per $10,000 financed' is available thru 12/31/2012. This means that you (a) get your equipment, vehicles, and/or software now, (b) get to take full advantage of the Section 179 deduction in 2012, and (c) get Section 179 bonus cash as well.

Leasing and Section 179

Did you know that your company can lease equipment and still take full advantage of the Section 179 deduction? In fact, leasing equipment and/or software with the Section 179 deduction in mind is a preferred financial strategy for many businesses, as it can significantly help with not only cash flow, but with profits as well.


The obvious advantage to leasing or financing equipment and/or software and then taking the Section 179 Deduction is the fact that you can deduct the full amount of the equipment and/or software, without paying the full amount this year. The amount you save in taxes can actually exceed the payments, making this a very bottom-line friendly deduction (you are reading this correctly; in many cases, the deduction will actually be profit).

Tax breaks on business equipment to be scaled back

Two generous tax breaks small-business owners received during the recession are going to shrink dramatically in 2012. That makes year-end tax planning more important than usual.

The changes affect the deductions for purchases of equipment. One is called the Section 179 deduction, named for a provision of the Internal Revenue Code. The other is called bonus depreciation. Congress approved the breaks to make it easier for small businesses to expand and hire workers. Although the economy is still slow, the breaks are being scaled back.

Ed Smith, a tax partner at the accounting and consulting firm BDO in Boston, says he's talking with clients about whether it makes sense to buy equipment before the changes take effect.

"Understand that we're not going to have this deduction in the next couple of years," he said.

The Section 179 deduction allows a small business to deduct upfront rather than depreciate the cost of equipment, such as computers, vehicles, machines in manufacturing, office furniture and sheds.

The deduction for 2011 is $500,000. In 2012, it will drop to $125,000. And in 2013, it's expected to fall to $25,000 — the amount it was back in 2002.

Bonus depreciation allows small businesses to take a deduction for equipment expenses beyond the amount allowed under Section 179. For 2011, the bonus depreciation is 100 percent. The maximum that can be deducted under the two deductions combined is $2 million. In 2012, bonus depreciation drops to 50 percent.

Under normal depreciation rules, the cost of equipment is deducted over a number of years according to a formula set by the IRS. So the Section 179 and bonus depreciation provisions have given small businesses accelerated tax savings.

You can learn more about the deductions in IRS Publication 946, "How to Depreciate Property." It goes into detail about the deductions and the regulations that govern how they can be taken. For example, the Section 179 deduction can't be used for your new heating and air conditioning unit. But that equipment can be depreciated.

It's also a good idea to discuss your plans with an accountant or tax attorney.

Changes in the tax law shouldn't be the biggest reason for buying equipment. Deductions aren't worth it if you're wasting your money on something your business doesn't need. But if you've been debating whether to buy tablet computers for your employees or install manufacturing equipment in 2011 or in 2012, it might make sense to move the purchase into this year. If you can get a better price than you would next year, that's another reason to buy now.

A big caveat: The equipment has to be up and running by Dec. 31. You can't order a new server or drill press this year, have it delivered in January and still take the deduction. You have to be able to use it — which means it needs to be installed — by the end of the year. However, it's OK if you don't pay for the equipment until next year, or if you're going to take several years to pay it off.

Something else to think about is whether you want to take advantage of these deductions now. You're not required to use Section 179 and bonus depreciation. In fact, you need to elect to take a Section 179 deduction when you file IRS Form 4562, "Depreciation and Amortization."

Depending on what your profits look like this year, and what they're likely to be in the coming years, you might prefer to use regular depreciation. So you might want to postpone your purchase until next year.

Smith says the money owners will save on their taxes from Section 179 and bonus depreciation can help them pay for the equipment they've bought. But using these deductions will eliminate any tax savings you would have had from depreciating equipment over time. Smith points out that when equipment is depreciated under regular rules, the tax savings from that can be used to cover principal payments if the equipment was financed. And the interest on financing is deductible.

Again, it's a good idea to consult a tax professional to decide which approach makes the most sense for your business.

Source Modesto Bee www.modbee.com

A Bonus for Companies Using Bonus Depreciation

The new Job Creation Act signed last year gives companies a bigger depreciation benefit, and more time to use it.

Businesses got more breathing room to capture a bonus depreciation deduction when President Obama signed the new tax and jobs bill into law last year. In general, the revamped and substantially liberalized provisions contained in The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 extend the Bush tax cuts for an additional two years, in most cases.

Further, the law extends and expands the additional first-year depreciation to equal 100% — rather than 50% — of the cost of qualified property placed in service after September 8, 2010, and before January 1, 2012. (September 8 is the date on which President Obama first broached the subject of "full expensing" of the cost of qualified property.) It also extends some similar tax benefits as far out as 2014.

The thinking behind the extension was to continue to spur capital spending by U.S. companies. For the past several years, the tax code has allowed for enhanced depreciation deductions with respect to tangible and intangible property, as long as the items met certain requirements. One of the more popular deductions related to this kind of qualified property was the "first-year depreciation" deduction. Under the older rules, an additional first-year depreciation deduction was allowed in an amount equal to 50% of the adjusted basis of qualified property that was placed in service during a specified period. That deduction has been raised to 100% under the new rules, and the time line has been expanded.

While some critical dates have changed under the new law, the mechanics of the deduction remain the same. For instance, the rules apply for both regular tax and alternative minimum tax purposes, but not for purposes of computing earnings and profits (see Section 168(k) of the Internal Revenue Code). In addition, the property must fall into one of the following four categories: (1) property to which the MACRS depreciation system applies (most tangible personal property) with an "applicable recovery period" of 20 years or less; (2) water utility property; (3) computer software (if either "off-the-shelf" or not acquired in a transaction involving the acquisition of assets constituting a business or a substantial portion thereof); or (4) qualified leasehold property that meets three criteria:
• the original use of the property must commence with the taxpayer after December 31, 2007; and
• the taxpayer must purchase the property within the "applicable time period" (after 2007 and before 2011 under the old law; but before 2013 under the new law); and;
• the property must be placed in service after 2007 and before 2011 under the old law, but before 2013 under the new law (or before 2014 in the case of certain long-lived property and transportation property).

Read entire article at CFO.com

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What do the tax cut extensions mean for business owners?

Tax Cut Extension- How It Applies To Equipment Leasing
In December 2010 President Obama signed into law a tax bill extending cuts for all Americans. The benefits range from tax cuts for millionaires and the middle class to longer-term help for the unemployed.
Business will benefit from the 100% expensing provision. For investments placed in service after Sept. 8, 2010, and through Dec.31, 2011, the bill provides for 100% bonus depreciation.
Operators will be able to depreciate 100% of equipment purchased in 2011. The bill also extends increases in the maximum amount and phase-out threshold under section 179, the association added. Under current law, a taxpayer with a sufficiently small amount of annual investment may elect to deduct the cost of certain property placed in service for the year, rather than depreciate those costs over time.
Expensing - One-year 100 percent depreciation. For 2012 Section 179 at $125,000 and $500,000 phase out – alas not continuing the much more beneficial $500,000 and $2,000,000 phase out which is still good for 2010.  According to Joint Tax the provision in general extends the expensing to qualified property placed in service after September 8, 2010 and before January 1, 2012.
 Boost to Section 179 Depreciation
Rather than depreciating business property over several years, Section 179 now allows a taxpayer to expense the entire cost of certain property in the year of purchase. The new law allows a Section 179 deduction for up to $500,000 in 2010 and 2011 for qualified property. If the total purchase of all acquired property exceeds $2 million, there is a dollar-for-dollar decrease in the allowable deduction.
Qualified property includes tangible personal property (such as equipment and furniture) and software that must be used more than 50% in a trade or business. Prior to this new act, real property (buildings and structural components, air and heating units) did not qualify for this special treatment. Now the definition of qualifying property expands to include ‘qualified real property,’ and limits the Section 179 deduction on this type of property to $250,000.
Qualified real property includes the following:
• Qualified leasehold improvements
These are improvements to interior parts of non-residential real property placed in service more than three years after the date the building was first placed in service. This does not include improvements to the exterior, elevators or escalators, common areas, or internal structural framework.
• Qualified restaurant property
A building or improvement to a building if more than 50% of the building’s square footage is devoted to preparation of and seating for on-premises consumption of prepared meals.
• Qualified retail improvement property
Improvements to non-residential real property if such space is open to the general public and used in the retail business of selling to the general public that meets the other definition of qualified leasehold improvements.
The Section 179 deduction is allowed to the extent of taxable income, with the remainder carried forward to the next year. Be careful, however, because Section 179 carry-forwards on qualified real property are not allowed beyond 2011.
 Extension of ‘Bonus’ Depreciation
The bill also extends through 2010 the 50% first-year bonus depreciation that had expired. The allowance is 50% of the depreciable basis of qualified property for assets purchased and placed in service for 2010. To qualify, the property must be a new (not used) asset that has a depreciable tax life of 20 years or less, software, water-utility property, or qualified leasehold-improvement property.
Land improvements also qualify as eligible property and include items such as sidewalks, roads, fences, bridges, and landscaping. There are no purchase or income limitations as described in the Section 179 deduction, and many large businesses can benefit from taking this extended provision to offset taxable income.
 New Reporting Requirements
The law provides for $12 billion of tax relief and builds in some revenue raisers to help foot that bill. One revenue booster requires informational reporting (typically 1099-MISC) on rental-property expense payments of $600 or more for individuals who receive rental income. There are exceptions to reporting requirements, such as for individuals who can show that the requirements create a hardship, individuals who receive rental income of a minimal amount, for members of the military who rent their principal residences temporarily. Further guidance on these exceptions should come out by the end of the year.
 What This Means for Your Business
For many, 2010 may be a year when cash flow does not match taxable income, and businesses are striving to maintain their capital in the business instead of paying taxes. If qualified-asset purchases are less than $2 million, a Section 179 deduction can be taken to reduce taxable income.
 In addition, if there are new land improvements or qualified asset purchases over $2 million, taxable income can be offset by taking the bonus 50% depreciation. Businesses can also elect to exclude real property from qualified Section 179 property if the regular $2 million cap is close to being reached. Whichever method is used, there are several strategies that may be implemented to defer taxation. In deferring taxation, property owners have additional cash available to grow their business.
 SBJA and Section 179 Deduction (Adjustments)
A qualifying taxpayer can choose to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property.
 The Small Business Jobs Act (SBJA) of 2010 increases the IRC section 179 limitations on expensing of depreciable business assets and expands the definition of qualified property to include certain real property for the 2010 and 2011 tax years. Under SBJA, qualifying businesses can now expense up to $500,000 of section 179 property for tax years beginning in 2010 and 2011.
 Without SBJA, the expensing limit for section 179 property would have been $250,000 for 2010 and $25,000 for 2011. The $500,000 amount provided under the new law is reduced, but not below zero, if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $2,000,000.
 The definition of qualified section 179 property will include qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property for tax years beginning in 2010 and 2011.
 Increased Bonus Depreciation for 2011
The bonus depreciation amount for business assets purchased in 2011 has increased to 100%. This means you can fully depreciate the cost of any business asset purchased next year. The bonus depreciation amount for business assets purchased in 2010 is 50%.
 For additional information on how the tax cut extensions apply to your business consult a licensed CPA or attorney.
For addtional information on equipment lease financing contact the experts at Mazuma Capital 801.816.0800
 Source:
IRS.gov
http://www.irs.gov/formspubs/article/0,,id=177054,00.html
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