Most new business equipment can be either depreciated over its useful life or expensed immediately under Internal Revenue Code Section 179. The maximum deduction is based on the following schedule for the date in which the tax year begins. Each 1040, whether Single or Joint, is limited to one maximum. 179 expenses passed through via K-1s from partnerships (1065), S-corps (1120S), or trusts (1041) are limited at the 1040 level to the one maximum amount. A C corp is able to deduct its own 179 expenses in addition to what is claimed on the 1040s of the owners. This is one of the many ways in which C corps can save thousands of dollars in taxes over S corps. The following table is of the Federal maximums. Many states have not matched these amounts and have much smaller allowable deductions. In those cases, it is critical to maintain two sets of depreciation schedules; one for IRS and another for the State. Since the basis of an asset may be different for each tax agency, the gain or loss on its disposal will similarly be different.
Section 179 Deduction
| 2006 | $108,000 |
| 2007 | $125,000 |
| 2008 | $250,000 |
| 2009 | $250,000 |
|
2010 2011 |
$500,000 $500,000 |
2011 is the Year to Do It!
As always, be sure to speak to your tax advisor before making any major decisions. The tax law is complex and this article is far too short to cover all the qualifications, limitations, and other potential traps. Best of luck!
Due to the extension of Section 179 under the 'HIRE Act of 2010' - the enhanced limits under the 'Jobs Act of 2010' - and the recently enacted 100% Bonus Depreciation under the 'Tax Relief Act of 2010' - you can basically write-off 100% of all the equipment and software your business needs to buy or finance this year!