2009 Tax Benefits Write-Off 250K in Capital Equipment Purchases

November, 2009

IRS Section 179

For small business owners, the clock is ticking on some favorable tax incentives to buy equipment or software. The federal income tax perks for doing so now are better than ever.

These tax advantages expire December 31, 2009

Under Internal Revenue Code Section 179 depreciation provisions, small businesses can potentially deduct up to $250,000 of purchased (not leased) equipment and software as soon as these items are put to work.

Here's an example of how a $325,000 purchase breaks down... Section 179 Write-Off Amount: $ 250,000.00 50% Bonus Depreciation: $ 37,500.00 Regular 1st Yr Depreciation: $ 5,000.00 Total First Year Deduction: $ 292,500.00 Cash Savings on Purchase: $102,375.00 (Assuming a 35% Tax Bracket) Lowered Cost of Equipment: $ 202,000.00

Some things you need to know...

C Corps - These businesses cannot claim a Section 179 deduction that would create or increase a tax loss for the year. The deduction is limited to the amount of corporate taxable income before the deduction.

Sole Proprietorship, Partnership, LLC, or S Corporations - Section 179 deductions are passed through to the owners and written off on their personal Form 1040. Individuals cannot claim Section 179 deductions that would create or increase an overall business tax loss on Form 1040.

Temporary Bonus Depreciation Break - A significant tax break is available for most new business quipment and software and some leasehold improvements that are purchased (not leased) and put into use by Dec. 31. A small business can generally claim first-year bonus depreciation deductions equal to 50% of the cost that's left over after subtracting Section 179 deductions.

Both Section 179 deductions and bonus depreciation write-offs can be used to create or increase an overall business tax loss for the year - which can create or increase a net operating loss for the year.

We are not tax advisers so please contact your account for further information. We you need help with choosing and implementing these IT related capital purchases please contact us.