Time is running out for US business owners to take advantage of the current Section 179 tax deduction, which is a small business friendly tax deduction from the IRS that is set to expire on December 31, 2012. -- The limit is currently $139,000, but will be dropped to $25,000 on January 1, 2013.
This will be the third-straight year in which the Section 179 deduction limit decreases. If you recall, it was $500,000 in both 2010 and 2011. And so, in order to maximize available tax benefits, you may want to consider making capital equipment investments before the end of the year.
About Section 179
The Section 179 tax deduction dates back to 1981, when it became part of the Economic Recovery Tax Act (ERTA). Section 179 was developed to jumpstart the economy by giving unique tax benefits to US businesses by allowing business owners to deduct all or part of the purchase price of certain equipment in the year it is acquired and put into use.
The only stipulation is that the equipment -- also referred to as property -- must qualify under the Section 179 guidelines. There is a variety of qualifying equipment; everything from office furniture and computers to business vehicles, machinery and more.
However, prior to making a capital equipment purchase, it's a good idea to check the IRS Section 179 web page to see a list of eligible equipment. Consulting with a business accountant can also be helpful when planning new equipment acquisitions.
By The Numbers
As mentioned earlier, the current Section 179 expensing limit of $139,000 will decline to $25,000 once the New Year begins. In addition, the first-year depreciation on new business equipment is scheduled to drop to zero from its current rate of 50%, and the ceiling on total capital equipment purchases is set to go from $560,000 to $200,000.
Knowing that the Section 179 deduction and bonus depreciation are going to drastically shrink, buying or financing new business equipment before then is a sound business strategy. The tax savings available this year are not guaranteed in 2013 and beyond.
The Section 179 Tax Deduction applies to both cash purchases and equipment financing, so you can choose the best option based on your individual budget and equipment needs.
More than Just Tax Deductions
The ability to deduct capital equipment expenses is by far the most attractive benefit of Section 179. But what about the positive impact that new equipment can have on a business? In today's highly competitive business world, the right equipment can set a company apart from the competition, improve operational efficiency and help drive profits. Many types of equipment have a short lifespan or become outdated quickly, which can present problems for any company in any industry.
Leveraging the Section 179 tax deduction frees up working capital that can be used to reinvest back into a business. The savings accrued can be used for a whole host of expenses, such as advertising, expansion efforts and payroll. Be sure to get your purchases made before the years-end to get the most from the deduction.
Bio: This blog entry was contributed by Balboa Capital, an independent equipment leasing company that serves small and medium-sized businesses nationwide.