Does your business need laptops, equipment, furniture, software, or a vehicle?
If you’ve been thinking about buying business assets, consider doing it before year end.
Contemplate what your business needs now and you could save:
Example of New Equipment with a 5 Year Life:
Equipment Purchase Cost $510,000
First Year 179 Deduction Year2016 $500,000
50% Bonus Depreciation Year 2016 $ 5000
Regular Depreciation Year 2016 $ 1000
Tax Savings in Year 2016 (at 30% tax rate) $151,800
In order to take advantage of two important depreciation tax breaks for business assets, you must place the assets in service by the end of the tax year. You have until the end of 2016 to purchase the asset and place in service to receive the tax benefit on your 2016 tax return. You can use a credit card to make the purchase and still qualify for the deduction. Use a credit card that earns you cash back, pay the credit card off when due and you have just added more savings to your bottom line.
Section 179 deduction
The Sec. 179 deduction is valuable because it allows businesses to deduct as depreciation up to 100% of the cost of qualifying assets in year 1 instead of depreciating the cost over a number of years. Sec. 179 can be used for fixed assets, such as equipment, software and leasehold improvements. Beginning in 2016, air conditioning and heating units were added to the list. If you are renting office space and need to make improvements, this deduction may benefit you.
The maximum Sec. 179 deduction for 2016 is $500,000. The deduction begins to phase out dollar-for-dollar for 2016 when total asset acquisitions for the tax year exceed $2,010,000.
Real property improvements used to be ineligible. However, an exception that began in 2010 was made permanent for tax years beginning in 2016. Under the exception, you can claim a Sec. 179 deduction of up to $500,000 for certain qualified real property improvement costs.
Note: You can use Sec. 179 to buy an eligible heavy SUV for business use, but the rules are different from buying other assets. Heavy SUVs are subject to a $25,000 deduction limitation.
First-year bonus depreciation
For qualified new assets (including software) that your business places in service in 2016, you can claim 50% first-year bonus depreciation. (Used assets don’t qualify.) This break is available when buying computer systems, software, machinery, equipment, and office furniture.
Additionally, 50% bonus depreciation can be claimed for qualified improvement property, which means any eligible improvement to the interior of a nonresidential building if the improvement is made after the date the building was first placed in service. However, certain improvements aren’t eligible, such as enlarging a building and installing an elevator or escalator.
This article explains only some of the rules involved with the Sec. 179 and bonus depreciation tax breaks. Contact us for ideas on how you can maximize your depreciation deductions.