Section 179, Got Me My Phone System Wholesale

Posted: October 20, 2011 in Uncategorized
Tags: , , , , , , , , , ,

Section 179 refers to the IRS tax code which allows for deductions. You, the taxpayer, can deduct the cost of your new phone system as an expense rather than having it capitalized and then depreciated over a period of years. What’s unique in 2011 is that both the ‘Tax Relief Act of 2010’ as well as the ‘Jobs Act of 2010’ that passed in late 2010 affected Section 179 in a positive way for this 2011 tax year. The newest changes are as follows:

The Section 179 Deduction limit increased to $500,000. The total amount of equipment that can be purchased increased to $2 million. This includes most new and used capital equipment, and also includes certain software.

“Bonus Depreciation” increased to 100% on qualified assets. However, this can be taken on new equipment only.

When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business has no taxable profit in 2011. Well address that later.

Here’s a perfect world scenario:

  • Your company’s qualified 2011 equipment purchases are $650,000
  • Your Section 179 first year write-off is $500,000
  • Your Bonus First Year Depreciation is $150,000. Compare this to the normal first year depreciation which would be 20% of the $150,000 or in this example $30,000.
  • Your tax savings, assuming a 35% rate is $227,500
  • Your total equipment cost is $422,500

What that means to you is that as long as your total 2011 equipment purchases are under the IRS maximums you will be receiving a de facto 35% discount (tax break) on the purchase or lease of your new phone system. If your new system costs $20,000, your out-of-pocket expense after the deduction is $13,000. There are two important caveats in that the equipment must be installed by 12/31/11 and your company must earn a profit in 2011. Even if your are unprofitable in 2011 you can elect to take the 100% bonus depreciation and carry it forward to a year in which your business is profitable.

Unless it is extended, the Section 179 deduction phases out after 2012, so if you want to take advantage of the higher limits in the 2011 tax year, you need to act before the end of this year.

This is for informational purposes only. See your tax professional for details specific to your company’s situation. For more information go to http://www.section179.org/index.html.

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Comments
  1. councilblogs says:

    Neat post! Cool way to relate section 179.

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