Section 179 Tax Update 2012
Overview of 2012 Section 179 Allowances
Businesses can now write-off up to $125,000 of qualified equipment and software during the 2012 tax year - subject to a phase-out if a business has capital expenditures exceeding $500,000.
Please Note – The bonus depreciation will still be available in 2012 tax year at 50%.
What is the Section 179 Deduction?
Most people think the Section 179 Deduction is complicated tax code. It really isn't. Let us explain.
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. That means if you buy or lease a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It's an incentive created by the U.S. Government to encourage businesses to buy equipment and invest in themselves.
Section 179 works like this:
When your business buys certain pieces of equipment, it typically gets to write them off a little at a time through depreciation. In other words, if your company spends $50,000 on a vehicle, it gets to write off $10,000 a year for five years (these numbers are only meant to give you an example.)
While it's true that this is better than no write off at all, most business owners would prefer to write off the entire equipment purchase price for the year they buy it.
In fact, if a business could write off the entire amount, they might add more equipment this year instead of waiting. That's the whole purpose behind Section 179. Here is an example of the savings that is available to you in 2012.
| 2012 Equipment Purchases |
$500,000 |
Total First Year Deduction: |
$200,000 |
Section 179 Deduction:
($125,000 maximum write off) |
$125,000 |
Cash Savings on Your Equipment Purchase:
(Assumimg a 35% tax bracket. $200K x .35 = $70K) |
$70,000 |
Normal 1st Year Depreciation Deduction:
(On remaining value of $375K. $375K x 20% = $75K) |
$75,000 |
Total Cost of Equipment after Tax Savings: |
$430,000 |
Use Bank of America's equipment loan calculator to estimate monthly payments, return on investment, and Section
179 tax benefits. http://practiceheartbeat.bankofamerica.com/calctool
Limits of Section 179
Section 179 does come with limits. There are caps to the total amount written off ($125,000 in 2012), and limits to the total amount of the equipment purchased ($500,000 in 2012). The deduction phases out dollar for dollar after $500,000, so this makes it a true small and medium-sized business deduction.
Section 179's More Than 50% Business-Use Requirement
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 dollar amount eligible for Section 179.
Potential Qualifies for Section 179
- Equipment (machines, etc.) purchased for business use
- Tangible personal property used in business
- Business vehicles with a gross vehicle weight in excess of 6,000 lbs.
- Computers
- Computer software (off the shelf)
- Office furniture
- Office equipment
- Property attached to your building that is not a structural component of the building (i.e.: a printing press, large manufacturing tools and equipment)
Who Qualifies for Section 179?
All businesses that purchase or finance less than $500,000 in business equipment should qualify for the Section 179 Deduction. Also, to qualify for the Section 179 Deduction, the equipment purchased must be placed into service between January 1, 2012 and December 31, 2012.
Act Now
Section 179 can change yearly without notice, so it benefits you to take advantage of this generous tax code while it's available. Section 179 offers small businesses a great opportunity to maximize their purchasing power. In addition, the Economic Stimulus Act of 2008, the Recovery Act of 2009, the HIRE Act of 2010 and the Small Business Job Creation Act of 2010 have provided the small business owner with generous new (and higher) deduction limits. Most of the equipment your business will purchase or lease qualifies for the deduction, so do your homework and verify that your company is leveraging the Section 179 Deduction this year.
Now is the time to invest in your business!
*Please consult with your tax or accounting advisor to see if these programs meet with your business and practice goals |
