Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year.
President Bush’s stimulus package increases the fist year write-off from $108,000 to $250,000. The total amount of equipment purchased is limited to $800,000. What does this mean for your business? It allows you to spend more on equipment and depreciate it entirely in the year of purchase.
This aggressive accounting gives you time to get into new markets, boosting your short-term cash flow.
For example, a company might purchase a crane and heavy-duty machinery to enter the tall-building construction market. Writing down $250,000 of the purchases frees up capital to focus on this niche market. If the company buys equipment over seven years, the $250,000 purchase incurs a $37,000 annual expense, while potentially reducing profit by $87,500 (at a 35% corporate tax rate).
- Howard Scott is a business writer and small-business tax preparer in Pembroke, Mass.