By Howard Scott. If you need to reduce taxes, Section 179 can be a useful tool. It allows all business owners to take a lump sum deduction on capital purchases rather than depreciate the full amount over five or seven years (the term depends on the type of equipment). This year, the limit increased to $24,000 (from $21,000).
For example, depreciating $34,000 worth of equipment conventionally over, say, five years yields a first-year reduction of $6,800, or about $1,900 in tax savings. Using Section 179, however, you could take a first-year depreciation of $26,000 -- $24,000 lump sum plus $2,000 of the remaining $10,000. The total tax savings is about $7,200 -- $5,000 more than the conventional method.
Of course, taking a lump-sum deduction means you'll have less depreciation in future years unless you purchase more equipment.
--Howard Scott is a business writer and small business tax preparer in Pembroke, Mass.