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Business Tip of the Month

Business Tip
of the Month
For the month of November 2004

Only a few weeks remain to claim bonus depreciation

A valuable business tax break expires at the end of December. That’s the special bonus depreciation allowed on the purchase of new business equipment. It was introduced in 2002 as part of efforts to spur the economy.

Now you shouldn’t run out and buy new equipment just to earn a tax break. But if you’re already planning some purchases for early next year, you might want to consider accelerating the purchase date to capture the bonus.

The bonus depreciation applies to most new equipment you purchase, provided you place it in service before year-end. If your purchase qualifies, you can deduct 50% of the cost as a bonus depreciation expense in 2004. The bottom line is that you’ll have an extra deduction against this year’s taxable income. Most new business equipment and certain leasehold improvements qualify for the bonus. In a few limited situations, the bonus period extends until the end of 2005.

Another expanded tax break for business purchases continues through 2007. That’s the provision that allows you to immediately expense the entire cost of some of your equipment purchases. Expensing allows you to write off the full cost against your taxes immediately, instead of deducting it as depreciation over several years. This year, you can potentially expense up to $102,000 of business equipment, subject to certain limitations. Most new or used tangible personal property you buy for your business qualifies.

Note that bonus depreciation applies only to new property, while expensing may be taken on new or used property. Also, the two benefits can be combined; the expensing option can be taken for a purchase, and the bonus depreciation can be used on the remaining basis if the property qualifies.

These tax breaks are two good reasons to do some careful planning. Figure out your business equipment needs for the next year or so. Once you’ve determined your needs, we can help you plan the timing to maximize tax benefits.

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