Important Tax Savings Information
Want to acquire business equipment and reduce your taxes? Here's how:
Business owners who acquire equipment for their business including machinery, computers, and other tangible goods, usually prefer to deduct the cost in a single tax year, rather than a little at a time over a number of years. This deduction is known by its section in the IRS tax code: a Section 179 tax deduction.
The "Jobs Act of 2010" allowed businesses to write off the FULL PURCHASE PRICE of equipment purchased in 2011 up to $2 million via two depreciation deductions: Section 179 ($500,000) and Bonus Depreciation (100% of equipment cost). However, Section 179 limits for 2012 were decreased. The maximum deduction remains $2 million but the Section 179 deduction was lowered to $125,000 and Bonus Depreciation fell to 50% of equipment cost. Still, companies that are NOT profitable in 2012 can use their Section 179 deduction and "carry-forward" the loss to future profitable years.
Benefits of a Non-Tax/Capital Lease
The benefit of a Non-Tax/Capital Lease is that it takes advantage of Section 179: expense the full equipment cost up to $125,000 if the equipment is put in use in 2012 plus 50% of cost over $125,000 (with the full deduction NOT to exceed $2 million). A Capital Lease/$1 Buyout lease qualifies for this deduction.
Example Calculation: Assume you finance $200,000 worth of business equipment, put it in use in 2012, and take advantage of Section 179. Your tax savings could be significant:
|Equipment Cost Example:||$200,000|
|Plus: Bonus Depreciation||$75,000|
|($200,000-$125,000 = $75,000)|
|Typical 1st Year Depreciation:||$40,000|
|($200,000/ 5 years = $40,000)*|
|*Depreciation calculated at 5 years = 20%|
|Tax Savings Assuming Rate of 35%:||$70,000|
|($200,000 purchase price x 35% = $70,000)|
|1st Year Savings / Lowered Equipment Cost||$130,000|
|($200,000 - $70,000 = $130,000)|
The sample calculation shows how taking advantage of Section 179 can significantly lower the true cost of equipment ownership from $200,000 to $130,000 by reducing taxable income by $70,000!!
For the specific impact to your company, please contact your tax advisor
For complete details, or changes to the tax incentives, please visit www.irs.gov or contact the IRS helpline at: 800-829-4933