There are some powerful tax breaks for small business that are designed to stimulate the economy through a massive increase in the first-year depreciation deduction for equipment purchases.
The Section 179 depreciation deduction has been expanded to allow businesses to take a tax deduction for the first $250,000 invested in most types of equipment. This is almost twice the limit that existed for 2007. There is a further provision that allows 50% of the value of eligible equipment to be be depreciated in the first year, with the balance depreciated according to schedules that are based on the type of equipment and its expected useful life. The combined effect of these two changes can be a powerful tax break for your business. For example, if you buy and put into service $600,000 of eligible equipment in 2008, you can use the Section 179 depreciation to write off the first $250,000 on your 2008 taxes and then use the 50% depreciation provision to write off half the remaining $350,000 on you 2008 taxes as an additional $175,000 tax deduction. The remaining $175,000 would be depreciated using IRS tables that apply to the type of equipment you purchased.
Don’t count on these extraordinarily high limits lasting past 2008 - they are designed to give the economy a shot in the arm. There are some limits on using the Section 179 deduction - your total equipment investment for the year must be less than $800,000 and your company cannot be operating at a loss for the year. The equipment must be actually purchased and put into service in 2008.
This brief article is not intended to be an authoritative treatment of tax law and you should follow the advice of your own tax experts and financial advisors before making large investments, to be sure that you will be eligible to fully benefit from these generous depreciation provisions.
{ 4 trackbacks }
{ 0 comments… add one now }
Leave a Comment