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Business Tip of the Month

Business Tip
of the Month
For the month of February 2004

 
Make tax-smart purchases of business equipment

With the economy showing signs of strength, it's a good time to take a look at your company's equipment purchasing plans for the year. Last year's tax act expanded two tax breaks for business purchases, one of which expires at the end of this year. So after you've decided what equipment purchases you need, make sure that you're maximizing the tax benefits.

Bonus depreciation
You can claim bonus depreciation on most new equipment purchased this year if it's placed in service before January 1, 2005. If your purchase qualifies, you can deduct 50% of the cost as a bonus depreciation expense this year. You depreciate the remaining 50% over the normal life of the asset as before. The effect is to give you an extra deduction against this year's taxable income. This tax break expires at the end of the year, with a few exceptions. Most new business equipment and certain leasehold improvements are eligible for the bonus.

Immediate expensing
Another of last year's tax breaks allows you to take an immediate tax deduction for up to $102,000 of business equipment purchased during 2004. The advantage of expensing is that you write off the entire cost against your taxes immediately, instead of deducting it as depreciation over several years. The expensing allowance begins to phase out when your annual equipment purchases reach $410,000. Most new or used tangible personal property purchased for your business qualifies for the break.

The two tax breaks have different requirements and time frames. In some cases they can both apply to portions of the same purchase.

Obviously you don't buy equipment just for the tax breaks. The first step is to go through a planning process to decide what equipment you need. But once you've established your purchasing plan, smart tax planning can maximize your savings. Please contact our office for more information on how to reap the biggest tax benefit from your 2004 equipment purchases.



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