Need A Break? Tax Law Extends Single-year Equipment Deduction Through 2011

glasses put on data documentWhen you acquire equipment for your businesses, you can deduct the entire cost in a single year, thanks to a tax break that’s been extended through the end of 2011.

In the past, business equipment such as computers and machinery had to be deducted over a number of years. Then a new tax code provision was enacted to help spur economic growth.

That provision, called Section 179, allowed taxpayers to deduct the cost of equipment as an expense rather than requiring the cost of the property to be capitalized and depreciated. In other words, single-year deductions were permitted—much to the benefit of small and medium businesses.

The Section 179 deduction started out at $25,000, increased to $125,000 then $250,000, and finally ended up at $500,000. And many assets qualify for the tax break, including computers, software, office machines and furniture, manufacturing equipment, and vehicles that weigh more than 6,000 pounds.

How does it work? Lets’ say you have a $600,000 profit and don’t want to pay taxes on that entire amount. At the same time, you need new computer equipment. You can buy that new equipment for $500,000 and only owe taxes on $100,000 of your profits.

Section 179 was set to expire at the end of 2010, but it’s now been extended. The Tax Relief Act of 2010, signed on 12/17/10, allows business owners to take Section 179 deductions through the 2011 tax year.

That means 2011 is a great year to consider purchasing equipment, because the immediate writeoff helps businesses such as yours keep more cash free for other purposes. “There is a big advantage to having that cash flow right away,” says Abe Schneier, a senior manager at the American Institute of Certified Public Accountants. “Even in the best of times, it is hard for many small businesses to borrow money for any sizeable investment.”

Related articles: Equipment eligible for the Section 179 deduction

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