October is the perfect time of year to look into the Section 179 Deduction, also known as the 179 Expense Election. Small businesses or those who spend less than $800,000 on capital equipment this past year may expense a capital equipment acquisition up to $250,000. If more than $800,000 is spent on capital equipment, the amount of the deduction declines as the amount spent increases.
To qualify, the property must be business equipment used in the business at least 50% of the time. Permanent structures do not qualify, although some single use farm buildings do. The equipment may be new or used and must be acquired during the 2008 tax year, from an entity not controlled by the purchaser.
If you lease or finance the equipment, the deduction may be greater than the investment required to initiate financing. For example, suppose you leased a piece of equipment in December of this year that costs $300,000. You have the ability to write off $250,000 but you have only invested the first and last payment to start the lease. The write off exceeds the investment you made to get that piece of equipment, resulting in a lower tax bill.
As always, talk to a tax professional first because every company's situation is different and there may be tax savings that are more suitable for your particular company.
Brad Harmon is the President at a leading financing company, First Star Capital (www.firststarcapital.com). Brad is a frequent contributor to online publications and newsletters, and is the author of this blog on commercial financing topics.
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