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There has never been a better time than 2007 to invest in your business and
supplement your growth. The expensing allowance under Tax Code Section 179 encourages
capital spending and allows you to deduct more depreciation than under the usual rules.
In fact, the first year’s tax savings could exceed the first year’s payments on the
equipment!
The Basics of the Section 179 Deduction
Under Section 179, businesses that spend less than $500,000
a year on qualified equipment can write off up to $125,000 in 2007. The rules
are designed for small businesses; so, the $125,000 deduction begins to phase
out if you purchase more than $500,000 in one year. Also, companies cannot write
off more than their taxable income.
When acquiring equipment, including machinery, computers and other tangible goods,
you obviously prefer to deduct the cost this tax year (2007), rather than a little
at a time over a number of years. This tax code deduction (Section 179) essentially
allows equipment purchases up to the amount approved for a given year to be deducted
from taxable income, if purchases are installed by December 31st. Depending on the
equipment and specific scenario of the business, any excess equipment cost above the
amount expensed under Section 179 can be depreciated using standard methods.
This spending allowance is small business incentive for
capital spending, which accelerates the economy and has a profound impact on our
business (equipment finance) in the last quarter of the year. Tangible Goods financed
by Equipment Loans or by most types of Equipment Leases (Non-Tax or Capital Leases)
qualify for this deduction. Examples of Non-Tax (Capital) Leases include a $1 Purchase
Lease, an Equipment Finance Agreement (EFA), and a 10% Purchase Upon Termination (PUT)
Lease. 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. Not all states follow federal
law; contact your tax advisor for further detail.
Most types of business equipment qualify for the Section 179 expensing allowance including:
- Tangible personal property (machines, equipment, furniture, etc).
- Business Vehicles with gross weight of 6,000 pounds or greater
- Certain other tangible property used for specific purposes.
- Single-purpose agricultural or horticultural structures.
- Certain storage facilities.
Generally, most movable assets qualify – but permanent structures do not qualify for
Section 179. Even used equipment and vehicles qualify if they are new to you.
In other words, if you acquire the equipment from a source other than yourself or an
entity controlled by you, it should qualify. To ensure property qualifies, please
reference Publication 946.
At Crest Capital, we can structure a Lease or Loan that allows you to take advantage
of Tax Code Section 179 and expense the equipment cost up to the amount allowed for
2007. You may depreciate any excess on the depreciation schedule for that particular
asset.
Tax Code Section 179 is an expense deduction provided for taxpayers who elect to treat
the cost of qualifying property (Section 179 property) as an expense rather than a
capital expenditure. The election, which is made on Form 4562, is for the tax year
the property was placed in service. Under Section 179, equipment purchases, up to
the amount approved for a given year, can be deducted from taxable income –
if installed by December 31st. For further detail, contact your tax advisor or
visit www.irs.gov and reference Form 4562.
For more information about Crest Capital’s financing programs, business planning tools
and industry resources, Contact Crest.
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