Section 179 and the Depreciation Bonus
January 16, 2013 Posted by: admin No comments
Upcrating Orbital X Photopolymer Processor

What This Means To You

Congress recently passed the Bill to extend Section 179 and the Depreciation Bonus retroactive as of January 1, 2012 through the end of 2013. This is great news for small business owners and encourages the purchase of equipment and software.

Section 179

This tax deduction allows the client to deduct the purchase price of new or used equipment and software in the year it was purchased and installed as opposed to depreciating the equipment over the life of the asset.  Though as of January 1, 2012 this tax incentive was reduced from $500,0000 to $139,000 and was to be reduced again as of 1/1/13 to only $25,000, Congress has retroactively extended the $500,000 expensing limit from 1/1/12 through 12/31/13.   There are certain limitations that apply including a $2,000,000 cap on total equipment purchased.  Additionally Section 179 may not exceed the taxable income for the year which it is taken.  This means that you are able to write off more of the new equipment you purchased and installed in 2012.

Depreciation Bonus

The first year depreciation bonus (aka “ Depreciation Bonus”) is for NEW equipment only.  After deducting Section 179 for NEW equipment purchased, you would then be able to deduct an additional 50% of the remaining balance for new equipment purchased and installed in 2012.   This benefit was to expire on 1/1/13, however Congress has elected to extend the 50% Depreciation Bonus through 2013.

This is big news for you if you were not able to take delivery of new equipment in 2012 and capture the tax incentives.  Fortunately you will have another year to take advantage of these perks. The tax incentives allow you to write off most if not all of the equipment cost this year which will help you realize a faster return-on-investment and help afford the additional equipment needed to continue growing your business.

Example I:

Cost of Equipment:  $425,000

Tax Deductions for 2013 (Providing it is installed by 12/31/13 and you have not purchased over $2MM in equipment in 2012 or 2013 and has this much in Pre-Tax profits)
Section 179 allows the 1st $500,000 to be deducted:   $425,000…..100% of the equipment cost.

If you are paying taxes at a rate of 39%, that would be a tax savings of $165,750.00.

Example II:

Cost of a Total Equipment Line:  $1,000,000

Tax Deductions for 2013 (Providing it is installed by 12/31/13 and you have this much in Pre-Tax profits)
Section 179 allows the 1st $500,000 to be deducted:  $500,000

Depreciation Bonus:  $250,000

Total Amount that can be Depreciation:  $750,000

If you pay taxes at a rate of 39%, that would be a tax savings of $292,500.

 

Posted in: Economic Recovery, News, Productivity

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