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Have you ever bought a new "state-of-the-art" machine only to discover that you paid dearly for some bells and whistles you didn't really need?
Or maybe you invested in a bargain basement piece of business equipment that wound up being more trouble than it's worth. For example, a stripped-down photocopy machine that doesn't collate documents or an inexpensive fax machine that requires employees to hand-feed the individual pages.
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Section 179 Deduction Goes Up for One Year Only The Economic Stimulus Act of 2008 almost doubles the maximum Section 179 deduction -- but only for the 2008 tax year when the maximum write-off is generally increased to a whopping $250,000 (up from $128,000 before the new law). For 2009 to 2010, the maximum deduction will revert to $125,000 (plus inflation adjustments) unless Congress takes further action.
Under a phase-out rule, a business that buys a great deal of assets that would otherwise qualify for Section 179 deductions can lose part or all of its write-off. Specifically, the maximum Section 179 deduction for an affected business is reduced dollar for dollar by the amount of qualifying assets in excess of a threshold for the year. For tax years beginning in 2008, the phase-out threshold is generally increased to a whopping $800,000 (up from $510,000 before the new law).
The higher threshold means that many more medium-sized businesses will be eligible for Section 179 deductions for tax years beginning in 2008. For 2009 to 2010, however, the phase-out threshold will revert to only $500,000 (plus inflation adjustments) unless Congress acts to extend the higher amount. |
These buying mistakes are costly to your business - and they can even be embarrassing if they wind up causing more mistakes.
Here's a basic plan for buying reasonably priced equipment that meets your business needs:
 Analyze the tasks the equipment must perform. With a "needs analysis," your company can identify exactly what the machines will be used for and what features are essential. Brainstorm with the people who will actually work with the equipment. Don't even think about shopping until your company's requirements are clear.
Compare specifications and prices. Check with professional and industry associations to see if they conduct tests of business machines. Trade publications are another potentially valuable source of product reviews.
Ask for references. If you're making a significant investment, ask the manufacturer or distributor for references from other companies in your line of business. When contacting the references, inquire about the performance and reliability of the equipment and whether the supplier provides maintenance and repair services.
Buy it used. There are dealers who sell barely-used office furniture and machines for a fraction of the original cost. Many of the castoffs came from companies that went out of business after a short time. Auctions provide exceptional opportunities too.
Keep taxes in mind. There are complex laws governing the tax deductions your company can claim for computers and other office equipment. Take a look at a few tips below and consult with your tax professional before buying expensive machinery to get the best results.
If you do your homework, the right equipment choice will become obvious. If you're uncertain, postpone the purchase temporarily or consider leasing the equipment. When it comes to expensive office machines, you're better off sure than sorry.
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Tax-Saving Equipment Tips
If you're buying new equipment for your company on an installment plan, you probably have to pay interest as part of the deal. Separate the interest component from the cost of the equipment. The reason: Interest is deductible in the year it's paid so you can get a fast write-off. In contrast, the cost of the equipment must be depreciated over a specific recovery period (for example, seven years).
Obtain the fastest possible deductions with the "Section 179" election. The maximum Section 179 allowance for 2008 is $250,000, up from $125,000 in 2007. So instead of depreciating equipment over several years, you can write off the entire cost in one year if you make this election, even if the cost is financed.
Many business owners are involved in more than one venture. In the case of pass-through entities (partnerships, LLCs, and S corporations), the dollar limitation rules for the Section 179 deduction apply at both the entity level and the owner level. (IRS Regulation 1.179-2) Therefore, advance planning may be necessary to maximize Section 179 deductions at the owner level, which is where the write-offs really count. Consult your tax adviser for details. |
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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