use business equipment

Created by the US Government to encourage businesses to buy equipment and invest in themselves, they mandated the implementation of Section 179 of the IRS Code.  Section 179 allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year – no more deprecating small amounts over many years.

Expensing the full price of business equipment – essentially reducing your business’s taxable income – means reducing the amount of income taxes your business pays.  Lower tax burden, higher profits!

The write-off is limited to $250,000 for this year (2008) only.  In 2009, the amount resorts back to the normal $150,000.  Further, the write down has to be in the year the equipment was acquired – no carry forward.

Example:

www.SECTION179.ORG shows a calculation where a business purchasing $400,000 in equipment would receive:

- First year write-off of $250,000.

- Bonus first year depreciation on the remaining value of $75,000.

- Normal first year depreciation of $15,000.

Resulting in a first year total reduction of $340,000 from taxable income.  Now, had the company not be able to reduce its taxable income by this amount, it would have to of paid taxes on the $340,000.  At 35%, this would have meant an additional $119,000 cash out flow to the government – reducing overall profits (net income) by the same $119,000.

Bottom line, with the $119,000 savings in taxes (not having to pay this amount), the equipment would have actually cost the company only (net) $281,000 – a 30% savings.  Can you imagine purchasing $400,000 in equipment and only paying $281,000 – it is like all equipment makers are offering a 30% off sale due solely to the IRS’s Section 179.

The equipment does have to ‘qualify.’  Qualifying equipment includes: most equipment (and machinery) for business use.  Can also be personal equipment used in the business.  Can consist of business vehicles, computers, software, office furniture, and office equipment.  Further, large manufacturing equipment and tools can also be expensed under this IRS Code Section.

Combine the Section 179 deduction of $250,000 for 2008 and a struggling economy where equipment manufacturers and vendors are reducing prices, this is the perfect time to obtain new business equipment.  Do not let this opportunity pass you by!

To find out more, contact your friendly neighborhood CPA or visit www.section179.org.

About the Author:

Joseph Lizio holds a MBA in Finance and is founder and owner of www.businessmoneytoday.com

Article Source: ArticlesBase.com – Purchase Business Equipment and Pay Less in Taxes – No Kidding!

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