How would you like a new computer for your business this
holiday season?
Even better, how about ten computers, a few printers, and
some iPhones? Or maybe an SUV - how would that Hummer look
under your tree (awkward comes to mind, but it's doubtful
anyone would complain.)
The preceding will happen for millions of businesses this
holiday season, with the IRS playing Santa Claus. All
because of a provision to the US tax code called Section
179.
What is Section 179, and how does it work?
In simple terms, Section 179 is an attempt by the United
States government to stimulate the economy by encouraging
small to medium sized businesses to purchase equipment this
year by making it very advantageous in a tax sense.
In a nutshell, it works like this:
Normally, when a business purchases equipment, they do not
get to "write it off" right away. They instead must
"depreciate" it over the course of several years. So a
business could not realize the full tax advantages until
years after the fact.
Section 179 does away with this, and allows certain pieces
of equipment (including most electronics and office
machines, and even some vehicles) to be deducted in full
the year they are purchased. This is an enormous
differential, and indeed spurs many businesses to make
year-end purchases (because the equipment must be purchased
and put into service by midnight 12/31/2007.)
Consider this:
Under the old provision of depreciation: A business
purchases a $5,000 computer system, and yields a taxable
income savings of $1,000 a year over five years. Yes,
that's nice, but it's hardly going to make a business run
out and buy a system right now. A business would simply buy
the computer system when they needed to upgrade, and not a
minute sooner.
Under section 179: That same business would realize the
full $5,000 deduction this year. This can have a profound
effect on the taxes this business pays. That might make the
business buy the system right now.
Why right now? Because tax codes change, so the smart
business will take advantage of Section 179 while it's
viable and actually look to buy qualified equipment this
year. And since many pieces of needed equipment qualify
(even many SUV's qualify), it makes it very easy to justify
a year-end purchase (statements like "we were going to need
new computers anyway - so we may as well save some tax
dollars" are often heard around the office supply store.)
Just like Santa doesn't bring gifts to bad children (so the
rumor says); there are some limits to what a business can
deduct. While the list of qualified equipment is extensive,
you still may want to make sure what you are buying
qualifies. There is also a limit to how much money can be
spent. $500,000 is the limit that a business can spend on
qualified equipment to fully qualify for the deduction, and
the total deduction cannot be more than $125,000. But most
small businesses will not reach these numbers, so Section
179 is truly a "small to medium sized business" deduction,
and aimed squarely at helping these businesses grow.
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Want the details about this important tax strategy? Go to
http://www.crestcapital.com/tax_deduction_calculator for
information to maximize your equipment investment. Learn
about options that can remove financial roadblocks to your
2007 tax savings.
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