Business owners who acquire equipment for their business: machinery, computers, and other tangible goods, usually prefer to deduct the cost in 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 2012. (Companies cannot write off more than their taxable income).
Benefits of a Capital Lease
The benefit of a Capital Lease is that it can take advantage of Section 179: expense up to $250,000 if the equipment is put in use in 2012. Example: Assume you finance business equipment, put it in use in 2012, and take advantage of Section 179. Your tax savings could be significant:
50% Bonus Depreciation applicable for equipment costs exceeding $250,000.
* Assumes a 35% tax bracket
Tax Code Section 179 & Election to Expense Detail
The election is for the tax year the property was placed in service. 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.
This expense deduction is provided for taxpayers 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. Capital leases qualify for this deduction in their year of inception. Not all states follow federal law. Contact your tax advisor for the specific impact to your business or visit www.irs.gov.
