Time to upgrade your server or servers? Need new computers for your business? How about upgrading all your firewalls to the latest technology? New VoIP phone system? CCTV Cameras? Notebooks for all your field reps?
Congress extended the amount that small businesses may write-off for capital expenditures in 2010 to $250,000, and that means this may be the best year ever to upgrade your infrastructure!
Business owners who acquire equipment for their business, such as computers, servers, network & security equipment and other tangible goods, usually prefer to deduct the cot in a a single tax year, rather than a little at a time over a number of years. This deduction is known by its section in the tax code, a Section 179 deduction.
Under Section 179, businesses that spend less than $800,000 a year on qualified equipment, may write-off up to $250,000 in 2010. The rules are designed for small companies so the $250,00 deduction phases out when a business purchases more than $800,000 in one year. (Companies cannot write off more than their taxable income).
Benefits of a Non-Tax / Capital Lease:
The benefit of a Non-Tax/Capital Lease is that it can take advantage of Section 179: expense up to $250,000 if the equipment is put in use in 2010. In addition, you may depreciate any excess on the depreciation schedule for that asset. Examples of Non-Tax/Capital Leases include a $1.00 Buyout Lease, an Equipment Finance Agreement (EFA), and a 10% Purchase Upon Termination (PUT) Lease. Example: Assume you finance business equipment, put it in use in 2010, and take advantage of Section 179. Your tax savings could be significant:
An example of a typical server installation and how this applies might look something like this:
Cost of equipment: $9,500.oo
Section 179 reduction if expenditures are over $800k: —
Dollar for dollar phase out if over $800k: $9,500.oo
Section 179 write-off amount: $9,500.oo
Regular First Year Depreciation Deduction: –
Total First Year Deduction: $9500.oo
Cash Savings on your Equipment Purchase: $3,325.oo
(Assuming a 35% Tax Bracket, Deprecation 5 years)
Lowered Cost of Equipment after Tax Savings: $6, 175.oo
Tax Code Section 179 & Election to Expense Detail:
The election, which is made on Form 4562, is for the tax year the property was placed in service or an amended return filed within the time prescribed by law. The total cost of property that may be expensed for any tax year cannot exceed the total amount of taxable income during the tax year. Section 179 property is property that you acquire by purchase for use in the active conduct of your business. To ensure property qualifies, reference Publication 946.
This expense deduction is provided for taxpayers (other than estates, trusts or certain non-corporate lessors) who elect to treat the cost of qualifying property as an expense rather than a capital expenditure. Under Section 179, equipment purchases, up to the amount approved for a given year, can be expensed (deducted from taxable income) if installed by December 31st. Non-Tax leases qualify for this deduction in their year of inception. Any excess above the expensed amount can be depreciated depending on the equipment type. Not all states follow federal law. Contact your tax advisor for the specific impact to your business or visit www.irs.gov.
Reminder: to take advantage of the tax incentives, your business equipment must be put in use by year-end. You should contact your tax advisor to learn about the specific impact to your business.
We can help you maximize this as we offer leasing and financing… Please email firstname.lastname@example.org or call 864-990-4748 for additional information!