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Business Tip of the Month

Business Tip
of the Month
For the month of November 2005


Time your equipment purchases to cut taxes

Do you have plans to buy business equipment early next year? If so, it might pay you to accelerate the purchase into 2005. There’s an annual tax break that lets you take an immediate deduction for the cost of business equipment rather than spreading the deduction over several years. If you qualify, you might want to take full advantage of your 2005 tax break by shifting planned purchases into this year.

The tax break is called the "Section 179 deduction." Normally when you buy business equipment such as a copier, office furniture, or a piece of machinery, you depreciate it over several years. Each year you deduct a portion of the purchase price as a business expense on your tax return. But the Section 179 deduction may allow you to deduct the full purchase price in the first year. That gives you a bigger deduction, lower taxable income, and lower taxes.

Of course, there are limitations. For 2005, you can claim a Section 179 deduction for up to $105,000 of purchases. But if your total equipment purchases for the year exceed $420,000, your deduction will be reduced dollar for dollar. There’s also a limit tied to your taxable income for the year.

Bottom line: It’s worth paying attention to the timing of your business purchases. If you qualify and if you haven’t yet reached your Section 179 limit for 2005, it could be worthwhile to accelerate planned purchases by a month or so. Or, if you’ve reached your deduction limit for this year, consider delaying purchases until next year.

Special limits may apply to some business equipment, such as SUVs. Also, you may qualify for a higher deduction if your business is located in certain distressed areas. The rules can be complex. So if you think you might benefit, contact our office. We can help you plan your purchases for maximum tax savings.

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