Businesses constantly need to purchase equipment for their business to expand or replace aging equipment. Usually, they want to write the expense off as quickly as possible for their taxes to see immediate tax savings. With the initial tax cuts in 2003 and the extensions and additional cuts made throughout the past four years to combat the recession, there have been two options for many taxpayers to completely write off their equipment purchases immediately.
Section 179 depreciation, which allows a taxpayer to expense new and used equipment purchases in the year of acquisition, has been around since 2003. It has allowed immediate expensing of a minimum of $100,000 since 2003 and up to a maximum of $500,000 with the 2012 amount being $139,000.
In addition, there has been bonus depreciation since 2008, which has allowed the taxpayer to write off 50% in 2008 and 2009 or 100% in 2011 and 2012 of new long-production capital purchases. With these rules being around for so long, there has been no sense of urgency to purchase new equipment.
However, this honeymoon is about to end. Beginning in 2013, barring some radical unanticipated agreement in Congress, bonus depreciation ends and Section 179 depreciation decreases to only $25,000. This will make the write off period for the capital asset purchases anywhere from 3 to 39 years. So go shopping, stimulate the economy and purchase equipment for your business before December 31st! This will not only help the economy, but also your cash position as you will see immediate benefits on your 2012 taxes!